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Here's How to Trade for Your Most Profitable Summer EverBy Jeff ClarkThursday, May 14, 2009 Investors ought to take some time off for the next few months.
The ominous sell signal I wrote about a couple weeks ago finally triggered yesterday. The rally off the March lows is over, and the intermediate-term trend for stocks is now lower.
The S&P 500 broke down from its bearish rising-wedge formation yesterday. And after a brief bounce to relieve the short-term oversold condition, the index should continue to the downside. Here's an updated chart...
 The chart has immediate support at 875, which is not too far from Wednesday's closing price. So we can look forward to a brief bounce when we get to that level.
But that won't be the end of the decline.
Most of the time, when a stock breaks to the downside of a rising-wedge pattern, it goes on to lose at least 50% of the gains from the start of the wedge. The bear market rally started at 675 on the S&P, and it topped at 925. That's a total gain of 250 points. So we can expect the S&P 500 to give up at least 125 points and perhaps bottom out around 800 or so.
That's a best-case scenario. The worst case is the market cascades to the downside and stocks make a new low on the year.
It's too early to tell which of those scenarios will unfold. But neither is good for investors. So take some time off. Get out of the stock market and go do something else. Come back in a couple months when things look a little different.
In other words, sell in May and go away.
Traders, on the other hand, should stick around. There are plenty of profits to be had on the short side. Stocks are now in an intermediate-term downtrend, and the smart strategy is to sell short into rallies.
Don't listen to the talking heads on the business shows who are telling you to buy into this decline. That's a recipe for disaster.
A reversal is unfolding, and it has the potential to wipe out a lot of the gains stocks have made since March. Play it correctly from the short side and this could be a productive few months.
In fact, it could be the most profitable summer ever.
Best regards and good trading,
Jeff Clark
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Miners IAMGOLD and Seabridge break out to new highs... gold up 4% so far this month.
H&R Block drops to 52-week low... down 10% since tax day.
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