This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

Key Reversals Suggest Sell in May

Stocks in this article: ^DJI^SPXQQQHGX

NEW YORK ( TheStreet) -- On Wednesday, Federal Reserve chief Bernanke testified that it was premature to remove the stimulus on the quantitative easing measures, and stocks surged to new highs. Then in afternoon trading, the Fed minutes suggested otherwise, indicating that the FOMC discussed slowing down the QE purchases.

Stocks soured, with the major equity averages closing below their lows of Tuesday. Wednesday was thus a key reversal for U.S. equities and lower closes today and Friday will confirm the key reversals.

A key reversal day occurs when a market sets a new high for a move then closes below the prior day's low. A key reversal is confirmed by lower closes the next two days. The Dow Industrial Average set a new all-time high, at 15,542.40, on Wednesday, then closed at 15,307.17, below Tuesday's low at 15,325.68.

The S&P 500 set a new all-time high, at 1687.18, then closed at 1655.35, below Tuesday's low at 1662.67. The Nasdaq set a new multi-year high, at 3532.04, then closed at 3463.30, below Tuesday's low at 3486.88.

The Russell 2000 set a new all-time high, at 1008.23, then closed at 982.26, below Tuesday's low at 995.20.


Setting a negative tone this morning is the 7.3% overnight plunge in Japan's Nikkei, down 1,143.28 points, to 14,483.98. In the U.S. markets, I say, Nasdaq 3583, or bust! Or, Nasdaq 3583, then bust!

Including today, there are six trading days left in May to proclaim "sell in May and walk away."

When bubbles inflate, stocks move in an orderly manner to the upside. Once the S&P 500 cleared my semiannual pivot at 1566.9, the upside was to my semiannual pivot at 965.51 on the Russell 2000. Having cleared the small-cap hurdle, my next target has been my semiannual risky level, at 3583, on the Nasdaq, which is only 1.4% above Wednesday's intraday high, at 3532.04. When equity bubbles pop, the major averages cascade back down to these pivots, like magnets!

While the major equity averages traded higher, the yield on the U.S. 30-Year bond has also moved higher. This yield was as low as 2.808% on May 1, and traded as high as 3.244% on Wednesday. Higher stock prices and a higher bond yield resulted in a U.S. equities market with 72.0% of all stocks overvalued. This continues the ValuEngine valuation warning.

1 of 2

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 16,805.41 +127.51 0.76%
S&P 500 1,964.58 +13.76 0.71%
NASDAQ 4,483.7150 +30.9230 0.69%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs