Coppo: Sell off coming in May/June

Bell Potter

Stockbroker

Traditionally May can be a poor month – but this time helped by the RBA rate cut (with more expected) that saw a -6% fall in the $A (got the offshore earners up), a big rebound in commodity prices, and the banks rebounding post their results after having been dumped hard coming into them.

An underlying expectation by most voters 53% who think the Coalition will win (vs. 28% that thinks ALP will win) – there is a fear in markets that an ALP win would not be good for the economy, companies or the stock market. So even though the polls say its close – the market has taken the view that the Coalition will win & that Turnbull will bring in much-needed reforms.

So May has so far been very good, at its high the ASX 200 was up 3.3%, but has since come back to be up 1.27%. With another 6 trading days until the end of May, anything can happen.

Don’t forget last month, if you had said – when the ASX 200 was down -3.4% in early April - that the market is usually up in April you’d have looked like a lunatic. But, as we know, it rallied +6.7% off that low from 11th April on - quite remarkable.

So the May sell off usually begins in mid to late May & I’m still of the view it’s on even though it may not feel like it now.

So I think these events have given the Australian market an edge over the US in May, where so far are outperforming them. So far in May the Dow Jones is down -1.58%.

Looking at the 3 months April, May & June on the ASX 200

Source: copporeport.com.au

Now looking at all 3 months…

April / May & June  - shows May / June weak …  The Green June month stands out

Source: copporeport.com.au

May/June down -6.2% in last 6 years

Now look at May & June combined in the last 6 years since 2010 – all have been weaker – with an average fall of a staggering -6.19%.

So after the market has rallied so hard, valuations are being tested, the banks look like they are going lower, commodity prices look shaky & a seasonally weak period ahead – I’m a seller of the ‘market’ here. By 'the market' that means the Top 25 stocks, other stocks can continue to do well even if the market is falling. If we get an ugly global sell off then nothing is immune in those situations, but for now, it’s the Top 25 I’d be on the short side on over the next 6 weeks.

The chart shows the combined moves in May & June over the last 6 years – not a pretty picture.   

Source: copporeport.com.au

As a chart it shows again how weak May/June are – the RED line: 

Source: copporeport.com.au

One more MAJOR reason why the sell off is coming

There is one more reason why I see the sell-off continuing over the next 6 weeks & it’s a big one.

I'm still doing the numbers & what it has revealed will be of interest to anyone who is investing in the market over the next 6 weeks.

You won't want to miss the last piece of the puzzle; you too will go bearish after you read it.

I'll have it ready for tomorrow's report…

This is an extract taken from The Coppo Report. For more information: (VIEW LINK)


1 topic

Bell Potter Securities is a leading Australian stockbroking, investment and financial advisory firm that provides a comprehensive offering of financial services to a diversified client base that includes individuals, institutions and corporations.

I would like to

Only to be used for sending genuine email enquiries to the Contributor. Livewire Markets Pty Ltd reserves its right to take any legal or other appropriate action in relation to misuse of this service.

Personal Information Collection Statement
Your personal information will be passed to the Contributor and/or its authorised service provider to assist the Contributor to contact you about your investment enquiry. They are required not to use your information for any other purpose. Our privacy policy explains how we store personal information and how you may access, correct or complain about the handling of personal information.