Selling in May has worked quite well the last two years. Therefore, a comparison of 2012 to the past two years is a worthwhile exercise. The chart below shows a weekly chart of the S&P 500 (top portion) and commodities (CRB Index) in the middle. The orange arrows point out the peaks in 2010 and 2011. The red vertical lines allow us to compare the S&P 500, CRB Index, and the two technical indicators, MACD and RSI. Detailed remarks can be found below the chart relative to the other notations.
The main takeaways from the chart above:
Based on our market models, the bulls remain in control, but they look vulnerable. Numerous weekly charts have weak MACDs, an indication of slowing momentum. There is nothing wrong with a MACD slowdown, but the margin for error to reach more concerning MACD levels is somewhat thin.
Ciovacco Capital Management
Chris Ciovacco is the Chief Investment Officer for Ciovacco Capital Management, LLC. More on the web at www.ciovaccocapital.com