April 2009 In Preview
Here we go! The most bullish month of any year! … well, almost …
In the Pattern Trader Tools’ Weekly Market Report, I posted;
- The last week of March, for the past 50 years, has reliably closed badly.
- Since 1978, only 9 of the last 30 years had bearish Aprils; 1981, 85, 87, 90, 93, 2000, 02, 04 and 05.
- The S&P500 is currently sitting below the shoulder level of its 12 year Double Top.
- The end of April ends the best 6 months for the Dow Jones Industrial Average and the S&P500 index which traditionally start at the end of the previous October.
As if right on cue, March finished with two out of three negative days – the last day hardly making any impact on the previous two days’ losses – as if to prove how reliable historical data can be. If patterns continue to hold true, we might have some hope for the coming Quarter. If things continue to be as predictable as March has been, then we could be looking at some gains in April and a pull back in May. And because Q1 failed to close above the december low of 8,118.50, the January Barometer is now in effect which points to a lower year ahead.
In my opinion, any break above the 8,000 level in April could see the Dow get up to the 9,000/9,250 confluence. Then expect the sell-off in May to bring it down to its current 8,000/6,500 range. A break below the 6,500 support (current 12 year low) will see the Dow realize my 6,000 low. For now, the only bright spark on the technical front is that Dow is holding above its 50DSMA and has been doing so for more than a week now.
While I’m waiting for the market to do all this, I’ll be watching for my 1st Christmas wish list to happen;
First criteria to become less Bearish:
1. Uncle Ben to stop bailing & stimulating
2. A Beautiful Curve that’s not too steep on the T-Bond Yields
3. Manufacturing & Production to stop falling
4. Consumer Expectation to start recovering
Target: 2nd Quarter 2009
Reaction: Market Bottom
Time: 3 to 6 months later
Right now, wish #2 is granted and it would seem that Uncles Ben and Obama are beginning to grant me wish #1 as they tighten up the TARP and readily reject calls for more taxpayer monies. I guess they’re seeing the light after shelling out all that dough only to see these companies threatening to file for bankruptcy or paying themselves obscene bonuses – good money down the toilet.
As for wishes #3 and #4 for Q2, we’re going to have to wait till we’re midway through Q2 to see if we do get them. Yesterday’s Consumer Expectations showed an improvement over February’s numbers but still came in under expectations … in a sense, better than feared. So maybe, wish #4 may be happening. We will only know if my wishes were truly granted by the time we get to September.
April starts the second earnings season which has traditionally been a good season in years past. This year, however, we might be forgiven for assuming that things are going to look pretty bad as companies pull back further on their guidance and report lower-than-expected numbers. But the truth is that the market will accept anything that is better-than-feared rather than react to worse-than-expected. For this reason, I am rather certain that April 2009 will be bullish, albeit in a bear rally.
The acid test, as mentioned in a previous post, will be May. The real stress test will be at the end of Q2 and throughout Q3 (traditionally the worse quarter of any year). But that is for another report. For now, I only want to get past April and then prepare for May.
March has been a really active month for me. Apart from the obvious schedule crush I faced, the market has really kept me busy on the side. The launch of our Pattern Trader Tools Special Monthly Report highlighting the Housing and Construction Sector has been nothing short of encouraging. Originally written as an educational paper, this report has turned into an “everything-you-need-to-know-about” thesis with information on anything and everything related to that Sector. This goldmine of a report has prompted lots of emails (both constructive and inquiring) which can only be encouraging for next month’s issue on the Agriculture Sector.
Back to the market … the only scary April day on record is the day that ends the 4th week of April. This year, it is expected to be Friday 24th. April Expiration Friday (17th) is usually bullish with 10 out of the last 12 finishing to the upside. The second and last days are the most bullish while the third week is the weakest of the four. (Last year, however, it was the strongest.) Good Friday falls on the 10th which makes for a three day weekend and a possible rally day on the 9th (Thursday).
Most commodity issues tend to consolidate or end their bull-runs in April. Grains tend to peak out while metals weaken and energy consolidates. Coffee will have its seasonal high which peaks in May while cocoa tanks and meats take a beating.
So how will I position myself in April? I’ll be going long on the SPY and several housing and construction related stocks and ETFs. I might even look at extending my run with the Healthcare Sector, in particular, the HMOs and Big Pharma. I’ll be out of everything before the end of the first week of May and depending on how April pans out, will be looking at shorting the market for May. No brainer.
Trade safe and be very cautious during earnings season … don’t let the volatility monster bite you!
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