Running the Gauntlet

Here we are. It’s April 30th. One day before “sell in May” takes hold.

We’ve been over this before. Like clockwork, stocks have stalled in the spring for three years. But this time around, the market looks strong. Indexes neared new highs again yesterday. The S&P is flirting with 1,600 again–much like we saw earlier this month. And the Dow is only about 150 points shy of 15,000.

Sure, there’s plenty of data to suggest stocks might not match their first quarter performance during the hotter months. PrinceRidge Group strategist Ari Wald notes that the S&P 500’s gains between November – April have trounced May – October returns for more than 60 years. Annualized gains from November – April have averaged 13.8%, while May – October gains have averaged only 1.4%, according to Wald.

But of course, this means nothing until the market signals that it’s ready to take a break. Right now, as the S&P accelerates its move toward the top of its broad trend channel, 1,600 is beginning to feel like a powerful magnet…

Stocks have churned higher in a broad trend channel for more than four years. Since the market dropped sharply in late 2011, this uptrend has found a steeper slope–tightening toward the new highs we experienced just a few weeks ago…

Despite the reality of price.

Remember the investor disconnect I’ve hammered away at for weeks now. You would expect the average investor to start buying into this rally. Instead, you’re seeing the exact opposite reaction. Considering the strong trend and new highs, there is little euphoria taking hold in the markets right now.

So the top-callers and crash captains are out in full force. The market’s red hot performance has irked some analysts to no end. I’m hearing a lot of barking about what the market should do almost every day. Then, when it fails to match up with the script, they tell us to wait and see…

Yes, the market has dodged some bullets over the past several months. But the underlying trend has proven so far that it is stronger than the soft economic data. Unless price says it’s time to pound sand, there’s no reason to get out of the way.

Buy what’s working. The defensive sectors have cemented themselves as market leaders. They’re absolutely crushing it. Stick with these safe names to top the market averages this spring…

Greg Guenthner
for The Daily Reckoning