S&P 500 Approaching New Multi-Year Highs Will August 2012 Mimic Last Year?
The S&P 500 index is showing strength after a horrible May 2012. Our analysis showed early in the summer that the old adage “sell in May and go away” wasn’t working this year (see June 29, 2012 Markets Move On Expected Eurobond, QE3 – “Sell In May And Go Away” Didn’t Work This Year). Even if the market tops sometime soon, traders would have missed a significant increase in price activity had they not gone long for the last two months. The gains may not be over for the intermediate run and this August won’t be similar to August 2011 when the S&P downgraded the U.S. causing stocks to become less attractive to global investors.
Recently, our analysis of the 20 year bond TLT suggested the market would follow through on an upward rise while some analysts were stating they were shorting bonds and the S&P 500 at the same time which didn’t seem to be a good short term trade. We would wait until the S&P 500 got nearer to new highs before beginning to look at the short side but an upward parabolic move could occur that would make this trade a bad play. A good sign that the rally may have more legs is strong tech participation. Small caps have not risen to new levels which also suggests the S&P may climb higher but we would be concerned if the Russell 2000 continues to lag.