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Tuesday, March 5, 2013

Is History Telegraphing a Spring Correction?

 By The Rude Awakening

Baltimore, Mar.5, daily stocks .- This market is getting downright predictable.

Well, maybe not predictable. But the past couple of years have started to feel like a cop drama. The names and places have been changed — but the story remains the same.

Take 2011, for example. The S&P 500 rallied nearly 6% January through the end of April. Then in May, it started to drop.

2012 wasn’t too much different. Stocks posted a rally of about 4.5% leading up to May. Then, right on cue, the May selling began — taking the S&P right back down to where it finished the year.

This time around, it’s uncanny how similar the S&P looks:

S&P 2011 to Present

Note how the recent drop lines up so well with the small dips in 2011 and 2012. Of course, 2012 gave us one more push higher before “sell in May and go away” kicked in. The S&P took a different route in 2011 — but ended up right in the same neighborhood by the end of April.

Of course, the real action that separated 2011 and 2012 happened in the second half of each year. In 2011, the initial eurozone scare prompted a sharp correction leading into fall. In 2012, we had the opposite: a rally that helped the market finish the year with double-digit gains...





It’s important to look at these relationships and market seasonality every so often. Historically, major market action tends to happen early and late in the year. And while stocks won’t follow any script perfectly, it would be prudent to look for weakness in the broad market as spring approaches. 



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