Sell April, Buy May

Hey There Income Hunters,

 

I expect a correction of up to 5% across indexes in May that you need to be prepared to navigate.

There are three reasons for this:

        1. We will get a high Consumer Price Index (CPI) number on May 12, possibly with a headline number over 3% …
        2. The higher CPI number plus significantly higher Treasury issuance will put downward pressure on TLT prices, hence upward pressure on 10-year Treasury yields … 
        3. These fundamentals are backed by a negative Price/Relative Strength Index (RSI) divergence that was triggered on Fridays new price high.

The chart below illustrates the negative price/RSI divergence. It clicked on Friday and considering SPY is up 11.29% in 2021 a pullback in May is likely …

I have put together compelling evidence for a Sell in April / Buy in May scenario … 

Sell SPY in April and Buy in May… 

The key in recent years has been to sell the rally in late April. I have included the extent of each correction below. It is interesting how quickly the market snapped back …

I plan on closing out the short by mid-may and then re-evaluating… 

Check out the trades I have on and my plan for this week …

Trades I have on for the May correction:

 

I will add an Invesco QQQ Trust ETF (Ticker: QQQ) put Spread today at $1.85 or lower if possible as well …

 

QQQs are also a great put spread candidate, especially because TLT prices will be heading lower with all the Treasury supply in early May …

 

 

Bring It Home

 

As always, the Power Income strategy begins with the macro forces that are driving stock and bond prices …

 

Accelerating inflation and growth are those driving forces — with inflation expected to be high in May and June lower TLT prices are expected…

 

Now, as the TLT/QQQ chart above illustrates, the correlation of lower TLT/lower QQQ is compelling…

 

Check out the Live Vol QQQ chart below that illustrates higher volume on down days than up days and rising implied volatility relative to historical. Both are indications of a possible reversal in the market …

 

 

The old adage is sell in May and walk away, but in the powerful bull market of the past few years that hasn’t been true.

 

My analysis does show, however, that we should expect a 3-5% correction in the weeks ahead and TLT and QQQ is the most efficient way to capitalize on it.

 

Have a great week and as always…

 

Live and Trade With passion My Friends,



Griff

 

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