Thoughts On Early May TradingI have a very reliable calculator that I am guessing is around 16 years old. As I get older, I unfortunately find myself using that calculator more and more. Certainly I am very attached to it but, in the spirit of saving the capital markets, I am willing to lend it to our friends in the ECB. They certainly need the calculator. As I said Monday May 3rd on Fast Money, the math just doesn't add up for the Greek bailout. We are talking about a need for 150 billion Euros, fully funded, over 3 years. What Greece is getting is 110 billion, not fully funded, and with a heavy reliance on - get ready - GREEK ECONOMIC GROWTH. Enough said. You get the idea and certainly the capital markets in the early days of May are too. By the way, nice job by the ECB not enacting quantitative easing (QE) and being critical of the United States for being too aggressive with our QE.
As far as our early May selloff, this is exactly what "A Baseball Season of Frustration" looks like. The S&P 500 Index on April 26th established a 52 week high @ 1219.80, placing the Index above its 200 day moving average, 1084.79, by over 10%. Historically, that is rather high and suggests that, from a valuation standpoint, the market is ripe for a correction. I suggest that the current selloff toward 1150 in the S&P 500 Index is healthy and necessary to keep the longer term cyclical bull trend intact. The "cash on the sidelines" theme is like my calculator - slightly long in the tooth.
I believe the market is beginning a necessary process where a rotation is under way. Junk cannot continue to lead the market higher over quality. Some would even argue that neither can small caps continue to outpace large caps. I suggest viewing the correction in the market as "rotational;" quality will be favored once again as we move toward the second half of 2010. On my shopping list in the capital markets are all the necessities - the simple bare necessities, that is.
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