If The Market Crashes This Month, This Is Why It Happened

I'm starting to feel like a real pessimist these days--always predicting a stock market crash that hasn't come yet.  But it's scary to me that the stock market can go up for months and months like this on no volume.  Stock market rallies are supposed to occur on heavy volume with all the big money buying in.  That's not what has happened since August 2010.  It has "floated" higher and higher on no volume, thanks largely in part to the Federal Reserve's QE2.

But there have been signs of cracks in the walls lately.  Some of the high flying stocks and commodities have gone parabolic and already begun to sell off--creating what Bill O'Neill referred to in his books as a "climax top." 

Let's look at a few other reasons why this market may correct (or even crash) this month (May 2011).

1)  Historical:  Dow Jones, May 1940 -21.55%.  The worst May in recorded history for the Dow and it only took 8 trading days to decline that much.  It occurred in the 11th year after the 1929 market crash.  We are in 2011--the 11th year following the 2000 market crash.  Coincidence?  Take a look at a NASDAQ chart since 2000 and compare it to a Dow Jones chart from 1929 through 1940.  Similarities?  (Hint: Yes!)

2)  Lunar:  Most people dismiss the lunar cycle and how it relates to the stock market, but I saw some interesting movements last year and decided to track it.  It's not always predictable, based upon lunar cycles, but two trends have emerged.  The first is that the market's biggest gains have always come in the quarter leading up to the New Moon.  It's not even a contest compared to the other parts of the lunar cycle.  If you had bought the S&P 500 seven or eights days prior to the New Moon and sold it on the day of the New Moon, you made money every time.  The other trend is that market corrections always begin just after the New Moon.  We don't always have a correction, but when we do have one, that's when it begins.  Oh, by the way, we had a New Moon on May 3, 2011.

3)  Biblical:  Okay, so this one is very controversial and I am not a follower nor a believer of Harold Camping, the man who predicted judgement day on May 21, 2011.  But there are enough other people who perhaps believe this or at least fear it until that day comes and goes.  By itself, I don't think it's a strong enough reason for a market crash, but we're piling onto other reasons at this point.  It could contribute.


4)  Newsworthy:  The market always peaks on good news.  What news could have been better than the death of Osama Bin Laden?  If the market sells off from where it is today, it will have peaked on Monday morning, May 2nd, right after we heard about the raid that took out Bin Laden on Sunday night.  Coincidence, of course, but if you look back at market peaks in the past--they always somehow coincide with very good news stories.  More importantly, the Monday rally fizzled out.  If nothing else, that's a good indicator that even the best news can't keep the market going higher.
I was wrong in August and wrong in November about a market peak.  I'm not saying I'll be right.  I am saying beware.