{"id":207254,"date":"2024-05-28T11:15:00","date_gmt":"2024-05-28T15:15:00","guid":{"rendered":"https:\/\/ibkrcampus.com\/?p=207254"},"modified":"2024-05-30T03:43:34","modified_gmt":"2024-05-30T07:43:34","slug":"we-dont-know-if-sell-in-may-works-until-june-at-the-earliest","status":"publish","type":"post","link":"https:\/\/www.interactivebrokers.com\/campus\/traders-insight\/securities\/stocks\/we-dont-know-if-sell-in-may-works-until-june-at-the-earliest\/","title":{"rendered":"We Don\u2019t Know if \u201cSell in May\u201d Works Until June (at the Earliest)"},"content":{"rendered":"\n

A popular refrain that I\u2019ve heard recently is that \u201cSell in May\u201d hasn\u2019t worked this year.  Indeed, so far it hasn\u2019t.  But all we really know is that \u201cSell in April\u201d and \u201cSell in early May\u201d haven\u2019t worked.  We won\u2019t, or can\u2019t, know if \u201cSell in May\u201d worked until June at the earliest.<\/p>\n\n\n\n

Quite frankly, when major indices are at or near all-time highs it is obvious that selling at any time prior would have been a mistake \u2013 at least if you hold index funds linked to those indices.  Some stocks go down even in the broadest advances, but since we tend to focus on macro rather than micro analysis, we will be talking about the market as a whole rather than specific names.<\/p>\n\n\n\n

To be clear, I believe that NVDA\u2019s latest beat and raise was a savior.  That the S&P 500 (SPX) and Nasdaq 100 (NDX) indices both fell sharply on Thursday<\/a> while NVDA rose over 8% in a post-earnings rally was anomalous, but imagine how far we might have fallen if that stock led the plunge.  And of course all things were largely forgiven the next day, as SPX recouped all its prior day\u2019s losses<\/a>.  Today at midday, we see SPX up less than 0.1%, almost all of which can be attributed to NVDA\u2019s 5% rise. <\/p>\n\n\n\n

Much of today\u2019s rise is considered the positive mojo of NVDA\u2019s upcoming stock split. Even though stock splits are essentially meaningless to institutional investors — and I will assert of similar \u201cbenefit\u201d to individuals in an era when fractional shares and listed options are readily available to small investors \u2013 the psychological effect has value.  It\u2019s another of those situations where if enough people think it is a positive, then it becomes one.  It could mean that downticks in NVDA will be few and far between now and the ex-split date of June 10th<\/sup>, and that when they do arise, the \u201cbuy the dip\u201d activity would keep them modest. <\/p>\n\n\n\n

Then what?  It is quite possible that the bigger the rally before the split, the more likely it becomes a \u201csell the news\u201d event.  Unless there is a groundswell of new investors waiting to pounce on NVDA after it splits AND despite a further rally, the split will simply be the equivalent of getting ten $1 for a $10 \u2013 useful, but not a meaningful uptick in value.  The other factor to reckon with is whether the continued rush into NVDA and other semiconductor stocks is resulting from new money coming into the market or whether existing money is simply being reallocated.<\/p>\n\n\n\n

Until last week, it appeared that the \u201cnew money\u201d was the catalyst.  After Thursday, I\u2019m less sure.  In recent weeks we saw a healthy rotation from the cadre of leading stocks into a wider array of market sectors.  Since then, the rallies appear to have narrowed out.  Indeed, it is difficult \u2013 if not outright wrong \u2013 to draw conclusions from a small sample of days, but I can\u2019t clear my head of the outside key reversal<\/a> that we saw on Thursday.  No chart pattern is foolproof, but this typically is a powerful one:<\/p>\n\n\n\n

SPX 1-Month Daily Candles<\/em><\/strong><\/p>\n\n\n\n

\"\"<\/figure>\n\n\n\n

Source: Interactive Brokers<\/em><\/p>\n\n\n\n

Then what should we watch for between now and June 10th<\/sup>?  First would be a break above Thursday\u2019s intraday high.  That would negate the reversal.  Other than that, we would consider whether sentiment is too euphoric.  There are signs that it might be. <\/p>\n\n\n\n