Stocks This Week: Sell Short Wells Fargo And MMM

The indices are likely to pull back and consolidate recent gains in the second half of May. Since 1885, May has been up 55.2% of the time. From May 15 to 31, this percentage falls to 50.0%. The best May occurred in 1931 when the Dow Jones rose by 9.1%, and the most bearish month was in 1940 when the market fell by 20.2%. Chart 1 depicts the average expected daily return in all Mays that have occurred in an election year. On average the market has fallen by about 3.5%.

This is a static cycle in that it changes slowly over the years. We confirm this seasonal cycle with the dynamic weekly cycle in chart 2. Note that it peaks on May 16^th. At that date, both the static and dynamic cycles will point down. The monthly cycle will also be weak in that time interval. This will likely lead to retracement or consolidation of the run from the March 23^rd low.

Chart 1

Chart 2

Wells Farg0 WFC is a short sale candidate. The weekly cycle tops on May 14^th and bottoms on June 5^th. All seven sell signals have been profitable in the last year. Note that the stock has been making new lows in relative strength. This cycle downturn is likely to contribute to further relative and absolute price weakness. The downside target is in the $22-$23 area.

Chart 3

Chart 4

The MMM weekly cycle peaks now. Four of the last five sell signals have been profitable while the buy signals have been ineffective. Relative strength has been falling since March and there are higher lows in momentum. The stock is likely to retreat closer to its $140 low.

Chart 5

Chart 6