chart 04-04-2016

The last trading day of the first quarter, and the first trading day of the second quarter, shared something in common; big buying on the closes.

This week should be an important week for the markets. There is a low level of economic reports and a high level of fed speak. The S&P is nearing a 4 month high and there doesn’t seem to be much in its path to stop it. We have always been avid followers of how statistics play out, April is a high stop of the best six month for stocks, and also marks a turning point. The end of April brings on the worst 6 month for stocks. Before we go there, we still have all of April, and its historically higher prices. According to Ryan Dick, head market strategist at LPL Financial, “April is the strongest month, on average, over the past 10 years, up 2.7% on average.” According to our friend Jeff Hirsch from the Stock Trader’s Almanac, when you break it down, April has been the best performing month for blue chip stocks. The Dow has risen an average of +0.61% every April since 2006, making it the best month for the Dow since 1950. The bullish scenarios are out there all over the place but no one is talking about the old adage; sell it in May and walk away. While I have been good about calling higher prices, I’m starting to see a lot of bears throwing in the towel, and are now talking higher prices. With a big shift in sentiment, and the S&P up nearly 15% from its Feb 11th 1802.50 double bottom, even the bulls are starting to wonder how much further the S&P can go? The old high in the ES was set back in May of 2015 at 2135, that’s only 65 handles away from the current 2070.00 price.

According to Jeff Hirsch of Stock Traders Almanac:

“Since 2006 April has been up ten years in a row with an average gain of 2.8% to reclaim its position as the best DJIA month since 1950. April is third best for S&P and fourth best for NASDAQ (since 1971).

April marks the end of our “Best Six Months” for DJIA and the S&P 500. On April 1, we will begin looking for our seasonal MACD sell signal and corresponding early signs of seasonal weakness. Even in presidential election years, the second best year of the four-year cycle, the “Worst Six Months” have experienced some nasty selloffs.

Normally bullish election-year influences (the second best year of the four-year presidential election cycle) have the exact opposite effect on April. Average gains since 1952 are approximately half of the average gain of all years since 1950 for DJIA and S&P 500. Largely due to a 15.6% loss in 2000, NASDAQ’s typical strength in all April’s since 1971 is transformed into an average loss in election years.”

election year April performance since 1952

The bottom line right now is the crowd has gone from short to long into the rally. With everyone so bullish and knowing election years can dampen April’s historically positive stats, and that the best 6 months for stocks are coming to a close, we think it may be important not to get ahead of the markets. The S&P is very overbought and in need of a pull back, but with with exception of one down week, the S&P has been up 6 out of the last 7 weeks. We don’t doubt the ESH can keep going up this week, but we also think the next 30 or 40 handles on the upside may not be as easy as the last 40 on the upside.

In Asia, 7 out of 11 markets closed higher (Shanghai Comp +0.19%), and In Europe, 9 out of 12 markets are trading higher this morning (DAX +1.06%). This week has a low number of economic reports, there are only 14 economic reports, 8 T-bill or T-bond auctions and announcements, 6 federal reserve bank presidents speak, and Janet Yellen speaks. Today’s economic calendar includes the Gallup US Consumer Spending Measure, Labor Market Conditions Index, Factory Orders, Eric Rosengren Speaks, 4-Week Bill Announcement, 3-Month Bill Auction, 6-Month Bill Auction, TD Ameritrade IMX, and Neel Kashkari Speaks at 5:15pm and at 7:00 PM ET.

Our View: Bullish sentiment remains high and based on how the futures closed on Friday we suspect higher prices but just not sure about today. The hedge funds and mutual funds are putting money back to work in the stock market like crazy. Even after a 265 handle rally in the ESM16 there seems to be no let up. Our view, sell the rallies with tight stops. I think we go down today, rally Tuesday, and then start working lower into the later part of the week.

As always, please use protective buy and sell stops when trading futures and options.

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    • In Asia 7 out of 11 markets closed higher: Shanghai Comp +0.19%, Hang Seng -1.34%, Nikkei -0.25%
    • In Europe 9 out of 12 markets are trading higher: CAC +1.22%, DAX +1.05%, FTSE +0.85% at 5:30am CT
    • Fair Value: S&P -7.92, NASDAQ -8.40, Dow -96.18
    • Total Volume: 2.0mil ESM and 6.7k SPM traded

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