Mid-Month & Seasonal MACD Update: Seasonals and Mixed Signals Suggest Flat Worst Six Months By: Jeffrey A. Hirsch & Christopher Mistal | April 15, 2021 | Email | Print

Thus far, April has lived up to its historic reputation of delivering market gains. DJIA is up 3.2% this April as of today’s close and S&P 500 is up 5.0%. From our Seasonal MACD Buy Signal last November, DJIA is up 19.9% and S&P 500 18.8%. NASDAQ, which has a “Best Eight Months” lasting until June is currently up 18.1% since our Seasonal Buy Signal. These are solid gains from our Tactical Seasonal Switching Strategy and further reinforces our declaration that seasonality is back.

 

 

Here again we present daily bar charts of DJIA and S&P 500 with the current status of MACD displayed. The current rally appears to be picking up steam as both MACD indicators remain positive and are trending higher (indicated by the blue arrow and today’s higher bar). As of today, DJIA would need to decline 352.87 points (1.04%) and S&P 500 would need to drop 174.80 points (4.19%) in a single day to turn both MACD indicators negative. 

 

Continue to hold long positions associated with DJIA’s and S&P 500’s “Best Six Months.” We will issue our Seasonal MACD Sell signal when corresponding MACD Sell indicators applied to DJIA and S&P 500 both crossover and issue a new sell signal. 

 

 

The long-term track record of our Seasonal Switching Strategy, which is based upon the “Best Six Months” in conjunction with our MACD Technical Buy and Sell Signal signals, has a solid long-term track record of outperformance with potentially less risk compared to a buy and hold approach. Since 1950, DJIA’s average annual gain has been 8.5%. Over the same time period, DJIA has lost an average 0.7% during the “Worst Six Months,” May through October, and gained an average 8.8% during the “Best Six Months,” November through April.

 

Detractors are quick to point out that there have been positive “bad” months and negative “good” months. This is absolutely true as there is no trading or investment strategy that works 100% of the time (even the best will report a trading loss every once and a while). In post-election years, the historically worst performing year of the four-year cycle (page 130, STA 2021), the “Worst Months” have not been all that bad with more positive periods than negative, but average gains over the six or four month period are still paltry. It is also worth noting that the one election year with a double-digit “Worst Months” S&P 500 gain, 1980, was followed by a tough “Worst Months” in 1981 (shaded in light grey in table). 

 

 

 

The trend of the market is predominantly higher as DJIA, S&P 500 and NASDAQ 100 (NDX) have made new all-time highs this month. However, there are mixed signals. NASDAQ Composite has not logged a new high since mid-February and Russell 2000 has not made a new high since mid-March and both have been moving mostly sideways since late-January. 

 

The market’s dominant uptrend is evident in the chart here of the NDX. NDX logged another W-123 Swing Bottom in March and is trending higher from the higher low at point 3 in late March. There is some overhead resistance around 13900 at the February high, though NDX is testing that presently closing at 14026 today. 

 

 

We remain constructively bullish on the market overall, but seasonals remain on track and the Worst Six Months (May-October) is nearly upon us. So as we anticipate our pending Best Six Months Seasonal MACD Sell Signal, we suspect the market will most likely pause and move sideways with some minor pullbacks over the Worst Six Months and not suffer any major correction. 

 

As you can see in the seasonal chart here, April 2021, the last month of the Best Six and #1 DJIA and S&P 500 month and #2 NASDAQ month, is putting on a rather stellar performance. This is encouraging and bullish as gains tend to beget gains and suggests more typical sideways market action over the Worst Six Months.

 

 

Our mean reversion study we posted on the blog last month suggest the gains we have experienced the last 12 months are not likely to be as massive over the next 12 months, though they are likely to be more in line with the historical average 1-year rolling returns of about 9%. 

 

So we are not going to be running for the exits when our Best Six Months Seasonal MACD Sell Signal triggers, but with the market extended, valuations high and a few political/geopolitical bumps potentially ahead on the horizon, we will prudently reposition into a slightly more defensive posture as we usually do around this time of the year as we detailed in the April Outlook when we get the MACD Sell Signal.