Stock Market Guidance: Traders Will See Continued Opportunities

Stock Market GuidanceMarket pundits have warned about the May to October period as the worst for making money. My stock market guidance for you is simply to keep your options open to trade from both the long and short sides. If you dumped your positions in April, you would’ve missed out on decent moves in May and there could be more to come in June.

As I said, May saw the stock market edge higher, as was the case in May 2014. The growth-oriented NASDAQ advanced 2.6% in May, while small-caps moved up 2.18%, as reflected in the Russell 2000. The blue-chips barely broke above break-even, while the broadly based S&P 500 gained 1.91% in May.

The Dow Industrials are up a mere 0.95% in 2015, despite the addition of Apple Inc. (NASDAQ/AAPL). Apple, while attractive, looks to be hesitating on the chart after a stellar move from $100.00 to $130.00 in a short period. If I were interested in this stock, I would be looking to accumulate on weakness.

Apple Inc Nasdaq

Chart courtesy of www.StockCharts.com

The fact that technology is leading the broader market higher this year is not a surprise to me. Up 7.05% as of the close of May, investors still appear to be enamored by growth stocks. And why wouldn’t they be, given the potential gains that can be achieved versus more conservative plays? The reality is that this continues to be largely a traders’ market on headlines and less so on fundamentals.

Nasdaq Composite Index

Chart courtesy of www.StockCharts.com

On the charts, we continue to see a battle line drawn at the 50-day moving average (MA). The Dow and Russell 2000 were below their respective 50-day MAs as of the end of May. In previous moves below, there were subsequent rallies.

Summer Stock Market: Keep Your Options Open

In the media, we continue to see warnings on the excess of the stock market. Consider this; in June 2014, small-caps and technology issues were hot. The Russell 2000 jumped 5.15% in June 2014, while the NASDAQ moved 3.9%. This situation could materialize again. So investors can play short-term call options that offer limited risk and excellent leverage.

Of course, there’s still the uncertainty of Greece. The country is essentially broke after using emergency funds from its IMF account to pay the last debt payment. With another payment about due, the country needs funding or it will risk a default. It’s simply a mess.

Then we have the crazy gains in Chinese stocks trading in China. The Shanghai Composite Index has doubled over the past year, up over 50% since March. I would be taking some money off here or at least protecting my profits through the use of put options.

In fact, investors can consider establishing a put hedge on the domestic markets, as there is still the threat of a bigger stock market correction on the horizon.

The second reading of the first-quarter gross domestic product (GDP) contracted, which is not a surprise. On Friday, all eyes will be on the May non-farm payrolls. The consensus is calling for the creation of 225,000 new jobs in May with the unemployment rate holding at 5.4%. The estimates look good on the surface but the low participation rate and quality of full-time jobs remain concerns. A soft result will help the stock market, as the Federal Reserve may hold off longer on when to raise rates.

As we move into the slower summer trading months, stocks could end up range-bound. But there will continue to be trading opportunities through stocks or options. I expect action to pick up as we move into October, as we would have seen the Q2 GDP and initial readings of the Q3 GDP. The central bank may also raise interest rates by this time.