To sell in May or not to sell in May? I guess that's the question.
Many people think that once we enter May, we're at that time of year when markets perform more poorly than they did during the prior six months. But for everyone who thinks May has to be a down month, I suggest you take a step back and consider the following: The first four months of the year have been terrific, so wouldn't it be natural for the next few months to take a breather?
As we consider sentiment, look at some big changes this week. First, folks seemed to get bearish in a hurry once beloved Alphabet's Google (GOOGL) (GOOG) disappointed, because the put/call ratio zoomed up to triple digits (104%) for the first time in a month. Hey, maybe they really are concerned about the month of May.
Of course that high reading serves to push the 10-day moving average up. But look at the second big change: The Investors Intelligence bulls scooted over 55% -- chiming in at 56.4%. Even I'm a bit shocked that they finally moved, especially since the bears fell to 17.8%, their lowest level since June of last year. This means we're likely pushing toward giddy.
On the chart below, however, you can see there really is no magic number. In 2016, coming off that big low in late January and early February, the bulls failed to reach 55% until August. It looks as if we're in a similar position, in that it's taken four months to get this high. In 2016, they never got to 60% before the market corrected that fall, so in that case 55% was "enough."
You can also see that in early 2017 and again in late 2017, the rise to over 60% bulls didn't matter to the markets. It wasn't until 2018 that these indicators mattered. The other part of this survey I like to watch is the bears-plus-correction minded folks. That's because you can see when we combine them and they soar, we are at lows in the market. On the other side, they rarely go under 40% when combined. And once there, they don't stay there long (presumably because the market begins to correct). The current reading is around 43%.
The other big indicator change was the number of stocks making new highs on the New York Stock Exchange. The highs increased to the highest reading in more than a year. This is good news. But before you tell me that there were so many interest rate-related stocks on the list, I would remind you that I do not rationalize an indicator. When there were so many interest rate-related stocks on the new low list in September, I didn't dismiss them, either. Besides, aren't interest rates a reason stocks go up and down?