by Michael Tarsala
So much for sell in May and go away.
Maybe the motto should have been, "ride out May, then buy like crazy".
They haven't said, "I told you so", but Patrick Larkin of the All Cap Value investment model and Sreeni Meka of the Long Term Value model pretty much called it. Each made strong arguments earlier this year as to why "sell in May" was a bad idea this time around. They were right. Markets continued to rally in July and August. Those that did sell in May may have had no choice but to buy into the rally, helping to take out the previous year highs.
The S&P 500 is now back above 1400 and on track to post its sixth-straight week of gains, with its largest component, Apple (AAPL), pushing to new all-time highs. The benchmark index is now approaching levels it hasn't seen since 2008.
There is reasonable breadth to the move, as well -- meaning that there is rally participation from most sectors. Broader rallies tend to hold up relatively better.
There are three reasons, however, to possibly think about making a transition toward more cautious investments soon:
1) As we noted recently, market complacency as measured by the VIX is at a 5-year low, making the stock market potentially vulnerable to future shocks.
2) The Transportation Index is still stuck in neutral. It's moving sideways within a triangle pattern, while stock indices push toward multi-year highs. To confirm a rally, you want to see companies that are shipping goods moving higher alongside the ones that are making them.
3) Stocks tend to be strong in election years. What happens after the election? It's possible that the strength could dissipate.
Are you prepared for the next big market move?
If you would like to learn more about investment strategies from Covestor managers Patrick Larkin, Sreeni Meka, or others, give us a call in our New York office, at 866-825-3005, X 703, from 9 to 5, Monday through Friday, Eastern.
At Covestor, we can set you up with your own separately managed account (your money is separate from everyone else's). You can get started with as little as $10,000. Some private wealth management firms require at least $1.5 million for similar services.