Market Thought... the pattern

Wanted to write this last night, but I was a bit under-the-weather last night. Curled up with the chills around 9pm and woke up around 7am. (For an insomniac, 9pm is pretty early!)

Since the the rally began in 2009, the last two years we have seen a pretty obvious pattern, sell in May.

The 2010 'sell-in-May' was exaggerated by the first Greek bailout.  In 2011, we got a few geopolitical events and the Japan tsunami that played a role in the market consolidation. (Then in August all hell broke loose thanks to the SP US debt downgrade and the run on the EU structural issues coming to the for front.)

It makes sense to have some consolidation around the current levels, considering the move we have had since October. But August to November were anything but normal month, and those months produced such a discount to the market, that we are still working our way out of it.

Looking back, year-to-date, the markets are currently up only 4.4% from a year ago. As earnings continued to grow, despite the collapse in the market. The first quarter is ending in a few days, and we are now approaching the second quarter.  Based on my 'new numbers' for the SP500 the market can push toward 1460 in the second quarter assuming a trailing multiple of 15 and companies meet their earnings estimates.

If not, the low-end estimates (with a trailing PE of 14.4) have the SP500 chilling at current levels.  This would assume a general sell-the-news during earnings. However, we are not in a highly correlated market where one company can dictate the performance of another.  Unless your an energy stock. (For instance, we should see a differentiation in SLB. Even though they warned on their North American Fracking business, they said their liquids were still solid. Traders simply focused on the former, and proof will be in the numbers.)

I think we will see some divergences this earnings season, allowing for new out performers possibly putting a floor to any real corrections, as highlighted in my 'churning' post.

(And if there are sell offs this quarter, eager investors may pick up shares quickly.  For instance, I think Apple may sell off this quarter because of margin compression. If they sell off, I am sure I will not be the only one buying Apple if that happens.)