MorningWord 5/31/13: June, she´ll change her tune

by Dan May 31, 2013 9:19 am • Commentary

MorningWord 5/31/13:  Lots of market peeps look to all sorts of things to help inform their market call, often times recalling years past or seasonal patterns.  The simpleton that I am, I look to none other than Art Garfunkel’s lyrics and melodic voice for my Q2 & Q3 inspirations….. and if Art is right this year:

“June, she´ll change her tune,  In restless walks she´ll prowl the night”

April Come She Will – Simon & Garfunkel

May was a back-breaker for the bears, as of last night’s close the SPX was up 3.5%, notching 16% gains on the year.  It appears that most market naysayers have either lost most of their will, or most their capital and may not be around if and when this market finally corrects.

To be fair, despite the continued strength in equities, global markets have changed their tune of late, starting with the volatility in commodities in April, spreading to the movement in currencies the world over in early May, followed by what appeared to be a buying crescendo in the Nikkei and the quick ascent of the yield of the 10 year treasury just this past week.  All of this price action coming at a time where the VIX sits almost 30% below its historical average.

We, as a team, have been too cautious during 2013.  It seems we constantly have a list of longs with a buy target that never comes. In some cases we sell too soon (see TSLA) Plain and simple, we haven’t caught the rally like we all wish we could have.  But there will always be regrets in trading, everyone’s always wrong about something.  The key is to not let those regrets affect your decision-making going forward.

For us, the tea leaves still dictate caution rather than exuberance.  Probably the biggest reason we’ve been reluctant to throw caution to the wind for some time now has been the lack of earnings growth for almost 2 years now.  Michael Batnick and Josh Brown at the The Reformed Broker posted this chart yesterday, showing earnings per share growth net of buybacks and without including buybacks:

Screen Shot 2013-05-31 at 9.09.58 AM


Not exactly a booming corporate earnings environment.  But again, that hasn’t mattered for a long time now.

Will June change the tune?  Maybe, maybe not.  We won’t let our past regrets change our process for filtering worthwhile trades, though.  And we do think Garfunkel’s right about June.