Helicopter Ben Still Flying as Traders Mull 'Sell in May'

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Stocks exit April on a new high, and with the promise of continuing easy money policies, investors could be tempted to rethink the "sell in May and go away" strategy of recent years.

The Fed is not expected to change its tune on easing policies or low rates when it releases its post-meeting statement after 2 p.m. ET Wednesday. If anything, economists expect a dovish Fed to tweak its view of the economy to show recent weakening and a low level of inflation. A CNBC survey also shows that Wall Street believes the Fed will now continue its open ended quantitative easing program into late next year.

Even though traders expect Fed Chairman Ben Bernanke's namesake 'helicopter' to keep flying, the power of "sell in May" hangs over the market. The Fed is expected to continue its monthly purchases of $85 billion in Treasury securities and mortgages. Bernanke won the nickname "Helicopter Ben" after he referred to a statement by Nobel economist Milton Friedman about fighting deflation by using a helicopter drop of money.

As the Fed started its two-day meeting, the S&P 500 Tuesday reached and closed at an all-time high of 1597.57, on a gain of nearly four points. The index is up 1.8 percent for April and is up 12 percent year-to-date. The Dow closed up 21.04 points at 14,839.

"I think the fact that we're at new highs might make people more cautious about May," said James Paulsen, chief investment strategist at Wells Capital Management. "Here we go. New highs and we're heading into May. I think Friday (jobs report) is going to play a role in it."

"There's so much feeling, given this May thing and how it worked out for the last three years. There's a lot of fear out there that it could happen again," he said. "I think we kind of had the correction, while everyone was waiting for the correction."

(Read More: 'Rotate in May' Could Be the Real Spring Market Play)

The "sell in May" strategy has worked for the past three years, as stocks slumped into the summer and the economy limped, but traders wonder if this year may be a bit different. For one thing, the Fed has left the door open on its quantitative easing program. There is no stated end date, and it is tied to the performance of the economy and employment, which are both weak enough to make stock investors think the Fed has their back for a while longer.

In the CNBC survey, the average month that participants now expect the Fed to reduce its monthly asset purchases is February, 2014, two months later than they expected in January when the economy was growing faster.

Analysts have been expecting stocks to sell-off for weeks now, but the market has defied them, correcting just slightly and heading back to highs even with weaker economic data. At the same time, earnings growth is tepid and one after another, major companies are missing on their revenue forecasts.

"It's a pretty stunning set of numbers that we've received to get the equity market reaction that we've gotten," said Barry Knapp, head of U.S. equity portfolio strategy . "In a way, I'm a little bit at a loss for words on it, but the answer is obviously this is all about the euphoria around central banks and what they can do." Besides the Fed statement Wednesday, markets are looking forward to the European Central Bank which meets Thursday and is expected to cut rates.

"There's obviously a lot of hope that the ECB is going to join the party and while they may very well cut the target rate 25 basis points and bring in some other unconventional measures, they're going to stop way short of what the Bank of Japan or Fed has done. The market may be way offsides on that one," he said.

(Read More: Who Cares About an ECB Rate Cut? Not the Euro)

Knapp expects the market to correct. "I have to think we can get past the ECB meeting and past the Fed meeting and then people have to start thinking about the effectiveness of monetary policy and the hard truth. We're seven months past the start of the last asset purchases program and the outlook is getting worse," he said. "You have a very strange set of circumstances. They've been successful driving asset prices higher but at some point those asset prices have to be related to fundamentals."

Paulsen said he is afraid of the pull of "sell in May" but he believes the market has seen separate sector corrections that may have refreshed the market.

"I like the fact that the character of the market is likely to have had a correction and is setting itself up for a rally again. I think it's not quite as intense" as past years, he said. "I'm less convinced of the Fed's relevance. I think they're kind of neutered and I don't think additional easing is really having any impact right now. But it might be a positive force because a lot of people think the Fed easing will be a reason for the market to go up. But I don't think it is."

Paulsen said the "sell in May" debate could be decided Friday, because another weak jobs report with a sub-100,000 nonfarm payrolls number could bring a selling wave. On the other hand, a very strong number well above 150,000 could bring in buyers.

"It's claims Thursday and it's jobs Friday, and that's where the rubber meets the road," he said.

Tony Crescenzi, senior strategist and portfolio manager at Pimco, said the seasonal slowdown, as in the past three years, has begun but investors may not head for the exits as much this year because of it. He said car sales and housing remain strong.

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"The current period is showing the same pattern. The difference is the seasonal influences are slowly fading so the dips in the data, the weakening of the data aren't so severe," he said. "Markets expect seasonal swoons so therefore, they're taking this swoon in stride." However, if this swoon does not reverse during the summer as they have in the past, markets could have a more violent reaction.

What to Watch

Besides the Fed, there is important ISM manufacturing data at 10 a.m. ET and ADP employment data at 8:15 a.m. ET. Construction spending numbers are out at 10 a.m. Monthly car sales are also expected to be released by auto companies.

The Treasury's refunding announcement is at 9 a.m. and could be important as traders have been speculating the Treasury could tip its hand on the size of future auctions.

Earnings are expected from media companies Comcast (CNBC's parent),Viacom and Time Warner. Merck, MasterCard, Allergan, Garmin, Humana,Hyatt Hotel, Devon Energy, CVS Caremark and Chesapeake Energy report before-the-bell. Facebook and Visa report after the close, as do Yelp, CBS,Seagate, Allstate, Murphy Oil, Prudential Financial, MetLife, Marriott andTesoro.