April Outlook: March Weakness Paves Way for Further Gains
By: Jeffrey A. Hirsch & Christopher Mistal
March 30, 2017
S&P 500 and NASDAQ edged into the black today for the month of March. The Dow and Russell 2000 are close and poised to do so tomorrow. As we expected and warned March 2017 like other post-election year Marches was weaker than March normally is. 
Normally a decent performing market month, post-election year payments to the Piper takes a toll on March as average gains are trimmed.” This likely has a lot to do with the fact that post-election March often sits smack dab in the middle of a new President’s first 100 days. 
Stocks were rolling along rather strongly during Trump’s first 100 days until the new healthcare bill ran into a wall. However, in the grand scheme of things the market seems to have shrugged it off with a fairly typical mild end-of-Q1 correction of -2.3% on the S&P 500. Now stocks appear to have found support around the indices 50-day moving averages. However, the Russell 2000 index of small cap stock has fallen behind as it normally does this time of year.
In fact, while Mr. Trump continues to run an unorthodox administration and operates much differently than any president we can remember, the market continues to rally, clearly anticipating some legislation or policy maneuvers that will prove beneficial to the economy and market. 
Or perhaps, the economy and corporate America are just finding better footing on the back of still historically low interest rates that are destined to rise only at an extremely measured pace. Unemployment continues to dwindle and inflation finally has gained some traction, but GDP remains tepid with the final Q4 rate revised 10 basis points higher today to a yawning 2.1%.
While we expect further gains in April and even potentially a few months beyond that, the market remains ripe for a more substantial correction in the 5-10% range, but we would not expect that to transpire until summertime during the latter part of our “Worst Six Months.” 
Our stock and ETF portfolios have performed quite well since last October and our Best Six Months Seasonal MACD Buy Signal proved to be timely. Even though we anticipate new all-time highs and we have a very bullish indication from our positive January Indicator Trifecta reading, we will keep in mind the potential for a post-election year correction and tighten up and lighten up and take some profits when we get our Best Six Months Seasonal MACD Sell Signal.
Pulse of the Market
March began with DJIA roaring over 300 points higher on the first trading day, but from then to now it has been a struggle. Since the first, DJIA has only recorded five daily advances and fifteen daily declines. DJIA also logged its first eight-consecutive-daily-losing streak since 2011. However, despite all of this seemingly apparent negative trading action, DJIA has remained above its 50-day moving average (1) and is still less than 500 points from its March 1 all-time closing high.
DJIA’s mediocre performance this March has turned both its faster and slower MACD indicators negative (2). Both indicators had been in a steady and consistent trend lower until recently when their trajectory lower began to level off. As of yesterday’s close, a single-day gain of 1.6% or more would turn DJIA’s MACD Buy indicator positive.
Dow Jones Industrials & MACD Chart
DJIA’s worst weekly decline (3) and S&P 500’s first daily loss in excess of 1% in 109 trading days came last week. That week was also flanked by DJIA’s third and fourth Down Friday/Down Monday (DF/DM) (4) of 2017. Single DF/DM occurrences have historically foreshadowed future weakness, but back-to-back occurrences have historically signaled a turning point in the current trend. The trend was lower then and DJIA has held support so its next move could be a run back toward all-time highs.
March weakness has dragged on throughout the entire month, but S&P 500 (5) and NASDAQ (6) have also held up with only two weekly declines each in the last four weeks. S&P 500 and NASDAQ put the full month back in the green today. DJIA would need a close above 20812.24 to be positive in March.
NYSE Weekly Advancers and Decliners (7) have been in a tug of war this month. The modest gains during the week ending March 3 were accompanied by a greater number of Decliners than Advancers which was an early sign of future weakness. A healthy market advance would be accompanied by Advancers exceeding Decliners by a solid margin on a consistent basis.
NYSE Weekly New Highs (8) peaked in February and have been choppy to lower since while Weekly New Lows have exceeded 100 for three straight weeks. This is typical behavior during periods of weakness. A steady increase in New Highs accompanied by a steady decrease in New Lows would be a sign that the rally has resumed. Even better would be an expansion of New Highs that exceeds February or even December’s high of 676.
Weekly CBOE Put/Call (9) readings have exceeded 0.70 for three weeks straight and have accompanied minor losses overall. Possibly due to the increasing popularity of weekly options, spikes seen in historical data, above 1.0 during times of elevated fear and near or below 0.40 during times of greed, seem to have disappeared. The contrary value of this indicator appears diminished as it increases modestly while the market is weak and falls while the market is rising. 
Pulse of the Market Table