After a volatile month, ETF investing strategists expect the
stock market to follow the seasonal "sell in May and go away"
script as many technical indicators are warning that a sell-off
tends to be weak from April to June in midterm election years,"
says Simon Maierhofer, founder of San Diego, Calif.-based
He expects to see a correction in May and June, followed by a
year-end rally into late 2014 or early 2015. He recommends that
investors sell short to profit from falling prices, depending on
how much risk they can tolerate.
Eye On Capital Preservation
"But more important at this point is capital preservation and
eventually re-establishing some exposure for the year-end rally,
which may turn out to be the last leg of this bull market,"
Maierhofer said in an email. "There are some bearish divergences
indicative of a slowing trend but not the kind of divergences
usually seen right before major market tops."
With just two days left in the month, the SPDR S&P 500 (
) was up 0.88% in April.PowerShares QQQ (
), tracking the 100 largest non-financial stocks on the Nasdaq,
was down 0.56%.SPDR Dow Jones Industrial Average (
) was ahead 0.92%.IShares MSCI EAFE Index (
), tracking developed foreign markets, outpaced all major
indexes, adding 1.2%.IShares MSCI Emerging Markets Index (
) was 0.66%.
Many technical indicators are flirting with levels seen at
previous market peaks, foreshadowing a correction, says Brad
Lamensdorf, chief investment officer of the Lamensdorf Market
Timing Report in Westport, Conn.
Currently 41.4% of total household assets are invested in
stocks, which is similar to levels seen at the previous market
peak in 2007, Lamensdorf wrote in his newsletter Friday.
Shaky Batch Of IPOs
Some 83% of initial public offerings have unproven business
models and negative earnings, reminiscent of the Internet bubble
in March 2000 when an all-time record 84% of IPOs had negative
earnings, Lamensdorf notes.
Furthermore, margin debt -- the amount of money that
have borrowed from their brokers -- has reached an all-time high.
Borrowers will eventually have to pay it back by selling their
Investors have become overly aggressive, as trading in
-- the most speculative area of the market -- has soared to new
The meltdown in copper suggests that the economy is weakening
-- a very bad omen for stocks. The red metal is known as the only
one to have a Ph.D. in economics because of its widespread use in
everything from consumer gadgets to construction. Lamensdorf has
allocated about a third of his portfolio to shorting stocks in
hopes of profiting from falling stock prices.
David Kotok, chief investment officer at Cumberland Advisors
in Sarasota, Fla., has overweighted his portfolio inUtilities
Select SPDR (XLU) because it is less volatile than the stock
market while offering a higher dividend yield.
Utility Yield Favored
XLU currently shows a yield 3.95% vs. 1.94% for SPY.
"They have been laggards a long time," Kotok said in an email.
"They are underowned and defensive."
A part of last year's worst-performing S&P sector, XLU
went from worst to first. It's rallied a robust 14% this year vs.
1.3% for the S&P. It returned only 13% last year, while SPY
jumped 32%. XLU could be considered a value play as its
price-to-book ratio of 1.6 is lower than SPY's 2.27, according to
Morningstar. Both trade at a price-to-forward earnings ratio of
Kotok has also overweighted energy, which he expects to do for
years, because of the U.S. shale oil boom. His firm manages $2.2
billion in client assets.
Ron DeLegge, editor of ETFGuide.com, recommends that investors
buy inverse ETFs, which rise in price when their underlying
indexes fall, such asProShares Short QQQ (PSQ).