We have seen the euphoria over the last five months. We have also seen how fragile this rally could be when some kind of fear hits the markets. No doubt the US data has been getting better of late, but is that a good enough reason for the markets to keep posting weekly highs and monthly highs? Is sky the limit?
And what about the Banks & Institutions that bought the stocks when the markets were low? Do you seriously think they are going to keep on buying without realizing or booking the profits on their holdings?
Markets have been driven by the Central Bank fueled unparalleled, unlimited liquidity. It is almost akin to everyone (read: the Banks, Institutions & the other big fellas) being given free chips to play in Las Vegas. You know pretty well what would happen eventually if everyone is given free rides in Vegas..
What happened to Apple could happen any time to Google, Priceline, Netflix, Amazon and other high flying stocks. And to the stock indices too.. All that is needed is a small trigger for a big drop in the indexes and individual stocks. May be once again Europe could be that trigger (with declining retail sales and news that Spanish Banks need more capital).. Or it could be fueled by the currency war that is gaining further momentum – with the ECB, RBA and RBNZ joining the Fed, BoJ and SNB. Or by the Fed deciding to cut down on the stimulus (they can’t afford to stop printing totally but a cut back is quite possible). Or it could be in the form of further crash in commodity prices. I am not worried about China as of now, though a bad news from there will be a bigger trigger for a market crash. The point is, there simply is no room for the market players to take further risks by going long at this juncture.
The bull theory that “there is a lot of money waiting in the sidelines to enter stocks” will be put to a real test in June. True, a lot of people are holding back on investing and are sitting on a cash pile but these are mostly retails investors like you and me.. When you and me decide to jump in finally, that is when the Banks, hedge funds, institutions, big players, operators and manipulators will be dumping the stocks.
And do not forget the fact that when the crowd in the room grows bigger, the exit always gets smaller..
The song “Sell in May and Go Away” did not come true. But what we saw last Friday could just be the tip of the June ice berg.. So my new song is “Prune down in June or you’ll be a singing a sad tune”.
Retail investors, please do not lose your shirts…….or pants for that matter.. If you still want to go long on some individual stocks, it is okay but make sure you keep an eye on the overall market movements (S&P and DOW) and ensure your stop losses are kept very tight.
Disclaimer: This is not an investment advice but I am bearish on US stocks right now. I am short SPY, IWM, AMZN & GMCR. I already shorted and covered GOOG, FB, LNKD and NFLX in May. Will be shorting GOOG again of it goes up to 909 and FB if it goes up to 26. GLD seems dicey, so I am not touching it right now. The only long position I currently have is VXX (yes, I love volatility and expect this June to be very volatile).