What's Happening?

It looks like the seasonal rally in US stocks may be coming to an end in May as often happens. There’s a reason for the old market saying “Sell in May and go away”

Technicals:

Historically, stock markets have tended to post strong performance between mid-October and mid-May and weaker/volatile performance between Mid-May and Mid-October. As we head toward the seasonally weaker time of the year, signs of slowing upward momentum have been emerging for a while.

The seasonal Dow rally peaked on March 1st about the same time as tax saving deadlines. Since then, the index has been trending sideways to lower, working off overbought RSI conditions. It has been unable to retake an uptrend like it broke in March, a sign of potential technical trouble. 

Recently, the Dow tried to mount another move upward. Although it was able to retake its 50-day average, it was unable to break its previous high near 21,130, completing a bearish double top and has since drifted back under the 21,000 round number. Meanwhile RSI peaking at a much lower high indicates the Trump election honeymoon is over and a correction or downturn pending.

In a potential pullback, initial support may appear near 20,720 the 50-day average, the recent low near 20,395 or 20,270 a 23% Fibonacci retracement of the post-election rally.