Dave’s Trading Diary: The “Curse Of May”, All Ordinaries Short Term Exit Looms Close
This excerpt from the trading diary is for educational purposes only and is not to be interpreted as trading or investment advice. See Terms Of Use here.
And so the curse of May rears its ugly head again. Despite the upward breakout on the All Ords recently, and the Dow Theory entry signal, the Golden Cross entry signal (for those who use Moving Averages) and many others, it looks like the saying “Sell In May” might be the trump card to all of them. Again.
It is nice (and important) having a stop loss in the market, as it means that if a stock goes down, it sells out automatically. I don’t have to be around to watch it or make it happen.  While it is a touch frustrating to watch your stocks be stopped out, it also might be the best thing that ever happened. For example if your stocks were stopped out in December 2007, it may have been frustrating at the time, but in hindsight it would have been a great outcome.
And that’s what stop losses are for - because we can’t tell the future. We can have a good stab at it, we can talk about it around the dinner table, but even the “gurus” who make fabulous claims out there don’t really know the future and still get it right only around 50% of the time. And so our stop loss gets us out if it becomes apparent that the stock has changed direction, which is what we want.
May Doesn’t Bring Us The Best Track Record: Check It Out
Below is a chart of the All Ordinaries, showing the last three years and the selloffs in May. Basically, it doesn’t look good.
Further to this, the upward breakout on the All Ords is close to failing, with a short term exit on the All Ordinaries only a few points away. While it is only a short term exit, it is an exit none the less, and enough to negate the upward breakout if it does happen this week. The chart below shows the possible short term exit and then a Fibonacci extension down, giving an indication of where prices might head to.
Using Fibonacci, there is a possibility that we could see falls to 3,886.
While I had shown this scenario in the Market Watches previously, the upward breakout made it less likely. Now it seems the upward breakout is failing, and the downward target scenario becomes more likely if it does fail.
Trading Diary Buys And Sells
In times like these I don’t open new positions. Basically I want the overall market to be going in the right direction first. Many stocks have been stopped out, some at a profit, others at a loss. Check out the trading diary to see the list.
Now is a great time to test a stock market trading plan or system. The market has not been easy over the last 12 months.  If the market continues down the stop losses are in just in case.
Have a great week everyone, and happy trending!
Dave McLachlan
See ASX 200 Prices with ASX 200 Charts
.
. If you enjoyed this, subscribe and get the latest updates for free:
May 7, 2012
Tags: All Ordinaries, Fibonacci, sell in may, stop loss, trend following Posted in: Dave's Trading Diary
Leave a Reply