Sell in May Coming Soon

It looked so great, with those wonderful, manicured earnings from AAPL, MSFT, AMZN, FB, and GOOG, but it seems like buy the rumor, sell the fact.  The price action for shorts is also constructive, as the market has consistently sold off of gap ups only to cut losses and gap them up on more "good news".  You can feel the weakness, even though the market is higher than it was last week. 

You had all those great earnings, a stubbornly dovish Powell, and Biden, the puppet for the MMT masters, talking about more spending bills, like a broken record player.  The Rona spending bills were touted as "relief, rescue, etc."  Now the egregious spending continues, now touted as "infrastructure".  Apparently, infrastructure also covers child tax credits, spending on health care, social programs, and other miscellaneous boondoggles.  They call it human infrastructure.

When you get a deluge of good news after a big run up and a marginal move above SPX 4200 to take out all the stops from the short sellers, and reverse hard like yesterday, it is a sign of saturation.  The longs have been slowly building up their positions and even the CTAs are joining in the party, as the research going around shows them as having similar sized long positions that you last saw in January 2018 and January 2020.  

With the seasonally bullish April out of the way, comes May, which has historically been a turning point for a lot of overextended rallies (May 2011, May 2012, May 2013, May 2015, May 2016, May 2019).  It looks like another sell in May scenario building up here.  I put on small short this week and will add more next week, hoping for any kind of 1st day of the month inflows to provide an opportunity to short more at good levels. 

Really the only thing that bothers me about shorting here is that there are still a few CNBC knuckleheads that are looking for a pullback (Tony Dwyer, 3rd time is a charm?, been looking for a correction since late March).  But the put/call ratios are staying low, and the next Archegos fearing chicken little traders/fund managers are either blown out of their shorts or rebought stocks at higher levels.  

Also 10 year yield looking like it is basing above 1.50% and reluctant to stay below 1.60% is another lingering bearish factor.  There won't be much stimulus talk for at least another couple of months, so that keeps away any positive catalysts there.  The reopening has been so well telegraphed and hyped up, that unless you get a deluge of people going out and spending, its probably going to be a disappointment. 

I have some thoughts on the yield curve, specifically 5-30s, and potential trades there but its not quite ripe yet, so if I see levels that I like, it will be worth mentioning.  In the post 2008 world, 5 year Treasuries are now historically rich vs 30 years, and it seems like most speculators are leaning too much into a bet that Powell dovishness means they have free cover for curve steepener trades.  I see a potential for a nasty unwind in the 2nd half of the year as taper gets closer.