There is quite a bit of discussion right now about if this market rally is real, and if it is how long it can last. The last round of corporate earnings weren’t as bad as many expected, and there seems to be some tempered optimism that this could be a sustained rally.

As much as I would like to see the recovery turn into sustained growth, I have to agree with Rick Pendergraft’s article a few weeks ago that this rally will soon run out of steam.

The reason is a bit different than Rick’s however. Looking at the charts, instead of the potential inverse head-and-shoulders that Rick points to, my reasoning is a little less fancy.

“Sell in May and go away”. As corny as it may seem, there is some merit to the old saying.

Here’s a chart of the last 5 years with June 1st denoted with a red bar and Sept. 1st denoted with a blue bar.

As you can see, the market goes virtually nowhere between June 1st and Sept. 1st. The moves each year were as follows:

2004: -3.3%
2005:  -0.08%
2006:  1.8%
2007: -1.6%
2008:  -7.8%

Unfortunately, things don’t look good for this rally. Expect sideways movement at best for the next few months, but more than likely a slide as Rick mentioned.

Source:  Will The Rally Last?