The bulls have had a rough go of it since the calendar turned to May, which has some fearing the old adage “Sell in May and Go Away.” It could be just some routine profit taking that coincides with the changing of the months, or some traders could actually be scared. Whatever the case, let’s try and examine what is going on.

Don’t Be Fooled

The headline indices haven’t been telling the whole story of what has been going on in the markets. The Dow actually rose slightly on Tuesday, even though there was significant selling under the surface. Similarly on Wednesday, the intense selling continued in many smaller cap and momentum names, even though the broader market registered moderate losses.

Commodities like oil and silver have gotten killed the most recently, which I believe is investors feeling more risk averse and a bit fearful in addition to just taking profits. When traders are feeling frisky, commodities usually soar along with the related stocks. It is a great tell for the broader market in my opinion. The sharp drops should be scrutinized for market clues.

The big question is whether or not this sharp selling is the start of a large downturn. The bears have been burned many times over the past few months trying to overreach to the downside. I think traders should adopt a wait and see attitude and not try to be too anticipatory about the direction of the market. There are a lot of profits to be protected and traders might rush to take them if things accelerate to the downside.

An example of this is the action in OpenTable (OPEN). I wrote that it is a high p/e stock that could fall. It reported earnings that didn’t quite cut it and got slaughtered to the tune of 15%. It is below $90 from a high of $118 reached not long ago. It is possible that this is just routine selling and we will see new highs shortly, but it’s best to be cautious and tread carefully out there.

Has The Market’s Character Changed? is an article from: