HedgeFundLIVE.com — I want to bring attention back to the strength that the month of April historically demonstrates. April tends to be one of the strongest months of the year. Now April is the start of quarterly earnings season and so far earnings seem to have been decent in my opinion. This earnings season was rumored to potentially be a negative catalyst for the market. It still has the potentially to push this market lower, but I am more inclined to believe that any moves down will be small pullbacks in an overall uptrending market.
So far month to date the SPYs are actually down 97bps. On average since 1993, April showed returns of +2.1% (median of +1.4%). In fact, there have only been five times when the market was down in the month of April since 1993, which means that there is a 72% probability of the market closing up on the month. It is worth taking a look at these five instances individually:
2005: -1.87% This weakness came on the heels of a weak month of March in which the SPYs were down 2.2%. Note that last month, the market was down about 42bps. In light of the weakness that was seen in March 2005, I am not giving much credence to this data point from April 2005.
2004: -1.89% Similar story to 2005 in that for March 2004, the SPYs were down 1.7%, another weak month.
2002: -5.8% This slide was part of the larger bear market of 2000-2002. I would deem this data point as an outlier; it is also the weakest April out of the 1993-2010 data set.
2000: -3.5% Most definitely an outlier given the very steep three day sell off the market experienced beginning April 12.
1993: -2.57% The market was in overall correction mode, but not too much of an outlier to mentally throw out this data point.
Given the way that this market has been trading (i.e., doesn’t give a crap about any piece of bad news; strong resilience after noticeably weak days), I believe this market will be able to rally into the green by the end of the month. A positive month would take the ES back up to 1321, close to the high of the latest move up. Again, I will remind you that being bearish is always difficult because timing is crucial and often, the down moves prove to be relatively small corrections in an overall uptrending market.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.