June Swoon Looms Soon

Yesterday was the second worst start to June in 50 years, a 90% down day, and a surprise as we have tended to see positive rises on the first few days of each month. Short weeks (Monday was a holiday in the US) tend to rise on light volume, but maybe not this week. Yesterday’s meltdown at the close was ominous. Taken together, these factoids increase the odds of a June Swoon, which we may confirm by the end of the week. Daryl Montgomery posits in SeekingAlpha that the first few days of a month are a tell:

Money tends to get reallocated at the beginning of the month. The behavior is more pronounced at the beginning of the quarter and most pronounced at the beginning of the year. In bull markets, much of this money gets allocated on the buy side for stocks. In bears markets, a higher percentage of investing money will go to safe haven assets. So in a bull market the first four trading days (not five as many sources claim) of the month tend to see a nice rise in stock prices. The first couple of days are almost always positive.

He counts four negative signals in the Hope Rally: July, September, February and May. A poor opening here or there indicates caution, but four such months indicate that the Rally has a weak foundation, especially combined with lessening volume to the upside and rising volume to the downside. Two down months in a row would pretty well confirm a bear market. We have until June 4 – Friday.

Lots of trouble brewing. Japan PM resigns. Israel stumbling into conflict. Criminal investigation into BP. Obama losing his most ardent supporters (eg. Chris Mathews, Maureen Dowd). Eurozone seems nearing an implosion as Euro bounces along the $1.22 level, getting as low as $1.211 this morning and bouncing, perhaps on central bank intervention. Rumors swirl of France being the next PIIGS.

The Shanghai market did a death cross. Chart here. Maybe it is not predictive of US and Euro markets, but the drop in the SSEC can now be seen as having preceded the slowing down of manufacturing which has now shown up in the Chinese PMI. In any event, a few more days like yesterday and the Death Cross (50 DMA crossing below the 200 DMA) will happen here, too.

Waves are pointing to at least hitting the 62% retrace at Sp1065. Walter Murphy’s newsletter comments that a break below that likely drives us to and below to recent low at Sp1041. EvilSpeculator notes that 1041 on the low side and 1104 on the high side mark the June Swoon vs Big Tease scenarios.

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About Duncan Davidson 228 Articles

Affiliation: NetService Ventures

Duncan is an advisor to NetService Ventures, where he focuses on digital media and the mobile Internet.

Previously he was at four start-ups: Xumii, a mobile social service based on a Social Addressbook; SkyPilot Networks, the performance leader of wireless mesh systems for last-mile access, where he was the founding CEO; Covad Communications (Amex: DVW, $9B market cap at the peak), the leading independent DSL access provider, where he was the founding Chairman; InterTrust Technologies ($9B market cap at the peak), the pioneer in digital rights management technologies, now owned by Sony and Philips, where he was SVP Business Development and the pitchman for the IPO.

Before these ventures, Duncan was a partner at Cambridge Venture Partners, an early-stage venture firm, and managing partner of Gemini McKenna, a joint venture between Regis McKenna's marketing firm and Gemini Consulting, the global management consulting arm of Cap Gemini.

He serves on the board or is an adviser to Aggregate Knowledge (content discovery), Livescribe (digital pen), AllVoices (citizen journalism), Xumii (mobile social addressbook), Verismo (Internet settop box), and Widevine (DRM for IPTV).

Visit: Duncan Davidson's Blogs

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