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Frequently Asked Question: What Is Going To Happen This May?

March 28, 2013

Stock of the Day

We're just a month away from May, the month that historically ushers in a period of low liquidity for Wall Street. In fact, for four of the past five years we have seen broad-based declines in May.

And if you remember back to May of last year, that was not a good month for the market. The market retreated nearly every single day of that month, so the Dow closed down 6.3% while the S&P 500 retreated 6.6%.

The bad news is that I don't think that this upcoming May is going to be that attractive either for the overall market. Right now the market is overbought; I've been visiting plenty of stock brokerage offices through my funds company, and I can tell you that the brokers have been on the phone nonstop, trying to get their clients back into stocks. There's almost a panic of trying to get into the market right now.

And as I mentioned earlier, a red flag is that many stocks are rising that have no right to be. If you review today's biggest gainers on the Dow today, you'll see that of the 30 or so I've listed, six are ranked as sells, 11 are ranked as holds while only three are ranked as strong buys. The way I see it, it's only a matter of time before people wise up to what they've actually bought into—first-quarter earnings season will probably be a rough wakeup call for some investors.

The good news is that there's something you can do about it. The market is getting narrower, so the premium stocks will rise to the top as investors trade their junk stocks for premium picks. In this case, there are still a lot of opportunities for yield seekers. Last year, we saw $282 billion in dividends from Wall Street, much of which came at the end of the year in anticipation of 2013 tax increases. This year, we're looking at $300 billion in dividends, or more. (Just be sure to verse yourself on the dangers of chasing dividends, first.)

The other opportunity, of course, is in aggressive stock buybacks. In February alone, $117 billion in stock buyback programs were announced, and this is fabulous news for savvy shareholders.

In the coming weeks I'm making it my mission to help you navigate the increasingly rough waters. I'll continue to point you to where it's safe to drop anchor as well as the trouble areas that you'll want to avoid.

So before you ask me whether you should "sell in May and go away," please know that my answer is an emphatic "no." While there may be some bumpiness ahead, cashing out of top-rated stocks prematurely could be a costly mistake.

Sincerely,

Louis Navellier

Louis Navellier

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