Well we certainly got some selling today. The major indices did what the small caps did on Friday, by wiping out the bulk of May’s gains in one fell swoop. The Dow dropped 2.1%, the S&P 500 dropped 2.5%, and the NASDAQ dropped 3%. All the talking heads are blaming this drop on the US dollar policy. I don’t know if that was truly the cause of today’s drop though. The dollar has been weak for a long time, as I’ve been pointing out. So why wait until today to treat it as a bad thing? Whatever the reason for the selling, I think this drop is long overdue. We’ve been in overbought territory for weeks, and there was way too much complacency by the bulls. The VXN was at 5 year lows by my charts, though CNBC was saying that it was at all-time lows. Whichever chart is correct, that’s some serious complacency. Oddly enough, today’s drop came on lighter volume than the Friday. So that’s a potential positive sign for the bulls. If the rally is to continue we should see some buyers step up as we approach the nearby support levels on the major indices (Naz 1486 and 1470, S&P – 919 and 902). If not, it could be a long summer for the bulls. And the “Sell in May” mantra may prove true once again.
