I am not much of a fan of seasonality commentary about the markets. Likely because if I see one of those statistics how 95% of the time the market is up on the day before XYZ holiday or something like that and I decide to play it, I will probably catch the 5% of the time it doesn't work.
April is supposed to be one of the best months of the calendar. As we headed into the month we saw all sorts of stats about it. And of course these same folks added in the Presidential cycle and we were supposed to be up even more. Yet heading into last Thursday the major market indexes were all down on the month. The last two days saved the month from being down but we all know this is not what the 'seasonality' folks meant when they told us how great April would be. Yet when you do the statistics for seasonality April 2023, it will go in the books as an up month.
I bring this up because if the market peaks sometime in early May (we get intermediate term overbought late this coming week) I have no doubt we will hear that old Wall Street adage: Sell in May and go away.
If you had sold in May last year you would have missed the summer rally. And for the last year that's pretty much what this market has been about, all those swings up and down, staying within the range. A year ago it was my view that bear markets tend to have a big leg down and then they tend to stabilize into a giant trading range as markets try and discern what exactly comes next in the economy. Recession or not? Deep recession or mild one?
At some point that trading range becomes quite obvious and the consensus becomes 'buy at (in this case) 3,600/3,800 and sell at 4,200/4,300 on the S&P 500. You can see the trading range on the chart and that flat line I drew at 4,200.
I suspect if the S&P 500 can get up and over 4,200, we will see the trading range folks jump on the 'new bull market' bandwagon. You might recall that move to 4,300 last summer had the Wall Street Journal declaring new bull market just as we were peaking.
For my part, I will do what I usually do and that is watch the statistics and indicators. Right now, they have not changed much from that two-day rally. We are still heading into an intermediate-term overbought condition late this week, and we still have a short-term oversold condition on our plates so I expect even if the S&P can get up and over 4,200 we are more apt to stall or peak by mid May.
The CBOE Volatility Index is now back under 16 and the Daily Sentiment Indicator (DSI) is at 20 for the VIX. Should the market rally much more and the VIX fall much more, this indicator will step right into the yellow zone (under 20) and that would mean a call for more volatility which tends to come with lower stock prices. That's what I'll watch for.