Stocks React To Earnings & FOMC Minutes

Wednesday, May 18, 2011
Stock Market Commentary:

Stocks and a host of commodities rebounded after a sharply three day sell off. So far, the old adage, “Sell in May and Go Away,” appears to be working brilliantly.  From our vantage point, the market rally remains under pressure due to the lackluster action in the major averages and several leading stocks.

Q1 Results & FOMC Minutes:

Before Wednesday’s open, a slew of high profile companies (DELL, DE, TGT, among others) released their Q1 results which largely topped analyst estimates. At 2pm EST, the Federal Reserve Open Market Committee (FOMC), released the minutes of their latest meeting which largely reiterated their recent stance that the economy is improving while inflation pressures are largely short-term in nature. According to the Stock Trader’s Almanac, there is some truth to the old adage, “Sell in May and Go Away. On average, the Dow Jone Industrial Average has rallied +7.4% during the period of November 1 through April 30 since 1950 (post WWII). The data also shows that the Dow Jones Industrial Average has only risen by +0.4% between May 1 and October 31. Further analysis of the data shows that the worst six-month periods in the market’s post WWII history have occurred between May-November (2010, 2008, 2002, and 2001, to name a few).

Market Outlook- Rally Under Pressure

From our point of view, the market rally is under serious pressure which suggests caution is paramount at this juncture.  Looking forward, the next level of support for the major averages are their respective 50 DMA lines and resistance is their 2011 highs. The rally remains in tact as long as support holds on a closing basis. If you are looking for specific help navigating this market, please contact us for more information.

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