Buy in May? Or Bye Bye in May?

by JDH on May 5, 2012

As we all know, it is conventional wisdom to Sell in May and Go Away.  The reasons are simple: earnings reporting season is ending, and as the weather in New York and Toronto improves, traders spend more time on the golf course, and at the cottage, and less time moving the markets, so it’s prudent to park your cash and re-enter the markets as the summer is ending.

It’s hard to argue with that sentiment this week, which included the first four days of May, as the TSX dropped almost 3%, the S&P 500 was down 2.44%, and the DOW dropped 1.44%.  Not a great start to the month. The Dow appears to have stalled, with significant resistance around the March top:

Oil was down 5.68% this week, and is now down 0.31% on the year, which would appear to indicate we are not in a booming recovery.

Gold declined just under 1% this week, but is still up just under 5% on the year.

The gold chart is the opposite of the Dow chart; there is obvious support, going back to the start of the year, around the $1,625 level, a level briefly touched on Friday before gold ended the day slightly higher.  Successive downtrends have been broken.  Since the $1,625 level has been tested five times in the last two months, and has not been significantly broken, I’m of the view that likely the bottom for the year is in.

In other words, buy in the May, not bye bye and go away in May.

Of course a further correction is always possible, particularly if the general market tanks and forces a flight to liquidity where everything gets sold and cashed in.  But for now, selective buying makes sense.

As mentioned last week, some of the big gold stocks, like AEM.TO – Agnico-Eagle Mines Ltd. are coming to life:

So the plan remains the same: pick the stocks you like, particularly explorers and producers that are well financed, and are potential take over targets, or like Agnico-Eagle that also pay a dividend.  Place your stink bids, and on down days, accumulate.  Unless gold drops significantly through $1,625, it’s a safe bet, I believe.

And props to MetalMeister over on the Buy High Sell Higher Forum for pointing out the article by Bix Weir pointing out that the smart players are likely accumulating physical silver at $30 and under.  I agree.  Comex and the paper markets are a rigged game, and the only way to beat it is to accumulate the real stuff.

So why are stocks a good idea?  I like physical, but the stocks are so beaten down, even with prices higher than a year ago, that they are now so undervalued that some players may begin switching from physical to stocks for more leverage.

I’m not selling anything, but I intend to continue deploying cash over the coming weeks.

Thanks for reading, enjoy the good weather, and see you next week.

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