Traders Take ‘Sell in May’ to Heart

tdp2664
InvestorPlace
With stocks yet to post an advance in any of the three trading sessions this month, the old “sell in May, then go away” strategy has quickly become the default setting. On Wednesday, the Dow Jones Industrial Average dropped 84 points to 12,724, the Nasdaq fell 13 points to 2828 and the S&P 500 shed 9 points to 1347. As on Monday and Tuesday, however, it’s not just equities heading south — the cool-off has continued in oil and precious-metal prices, too. Crude dropped 1.6% to fall below $110 a barrel for the first time in more than 10 days. Gold, meanwhile, fell nearly 2% while silver prices shed more than 7%.  That marks a 4% drop for gold in three days, while silver has plunged about 21%. As a result, investors also saw the continued selloff in small-cap stocks that were formerly favorites to find quick-hit ways to play the rise in energy and commodity prices. The Russell 2000 Index fell 1.1% on Wednesday, and has dropped about 3.5% this week. Of course, many of those same small-cap stocks tend to be traded on the Nasdaq, which showed a smaller loss on the day. A large reason for that was a stronger performance by the Nasdaq 100 — an index we pointed to last week as a suggestion that some sort of market correction could be in the offing. It remains to be seen, of course, whether tech (large-cap tech, anyway) has found a near-term floor or it was a one-day bounce after a run of underperformance. It should be noted that semiconductors were especially strong on news that Varian Semiconductor (NASDAQ: VSEA ) would be acquired by Applied Materials (NASDAQ: AMAT ). That’s not to say that 100% of the market’s deflating on Wednesday was completely based in the laws of momentum. The ISM services index for April came in well below consensus expectations, marking the slowest rate of growth since last August and — at 52.8 — coming exceedingly close to the 50.0 expansion/contraction line. Isn’t it curious that last August also marked the bottom before an eight-month, 30% rally in stocks? If the economy is planning to revert, it seems logical that stocks could follow some of that road back.