an tSionna {04.15.13}

Weekly chart of the SPY, the S&P 500 ETF. {Remember we use this as a proxy for the S&P 500 because it's something you can actually trade and it mirrors almost exactly the S&P 500 index.} Here's a market that's climbed the "Wall of Worry".  Since the fall of 2011, stocks have been in a consolidation/ thrust higher/ consolidation/ thrust higher pattern.  These patterns have actually been persistent since 2009 but have really been noticeable these past few years.  The pattern is highly correlated to market seasonality.   If stocks follow the pattern this year we should see topping action soon.  Oddly, however, charts are indicative of a break out pattern out of consolidation last week.  It is often said that markets force traders to learn patterns and just when they get comfortable, Old Mr. Market changes the way things trade.  As such it would be ironic if all the "Sell in May" folks this year were wrong!  Earnings season heats up this week and that is likely to be the real determiner of market action over the next several months.  But a positive earnings season just might throw this type of thinking out the window for 2013.  There are years where markets actually go up in the summer.  Stocks cruised higher in both the summers of 1995 and 1997 for example, however economic growth was much stronger back then.

Of course the corollary, weaker than expected earnings just might be the excuse to get the seasonal methodology back on track.  Yet I'm reminded once again of the Consiglieri's teachings, "markets will do what they have to do to prove the most amount of investors wrong.  In that case in my opinion the direction of the most pain is stocks that just continue to ramp higher, leaving those that fear this market on the sidelines.  In that case they're either going to have to chase stocks higher or wait for a pullback to get long.  Stocks almost never pullback when you want them/need them to.  That's not how it works.

Don't know of  course what's going to happen but keep that variant thought someplace handy.

*Long ETFs related to the S&P 500 in client and personal accounts.