April Outlook: Rally Into End of Best Six Months
By: Jeffrey A. Hirsch & Christopher Mistal
March 30, 2023
The last month of the Best Six Months (BSM) begins in two trading days. Our Best Six Months Seasonal MACD Sell Signal can trigger anytime on or after the first trading day of April, which is Monday April 3rd this year. NASDAQ’s Best 8 Months end in June. Here’s where we stand right now. As of today’s close, from our BSM MACD Buy Signal on October 4, 2022, DJIA is up 8.4%, S&P is up 6.9% and NASDAQ is up 7.5%. 
We are not issuing the signal at this time. We are only preparing you for when it does arrive.
When both the DJIA and S&P 500 MACD Sell indicators trigger a new sell signal on or after April 3, we will send an Almanac Investor email. We will either outright sell specific existing positions or implement tight trailing stop losses. We will also consider establishing new positions in traditionally defensive areas of the market which may include bond ETFs, gold and gold stocks, outright bearish (short) positions and other sector ETFs with a demonstrated track record during the “Worst Six Months.” All stock and ETF holdings will be evaluated at that time. ETFs providing exposure to sector seasonalities ending in April and May along with underperforming stocks in the Almanac Investor Stock Portfolio may be sold at that time as well.
As you can see here in the chart below of the S&P 500 both the 12-26-9 sell side MACD and the 8-17-9 buy side MACD are in uptrends and recently had bullish crossovers where the blue MACD line crossed above the pink signal line. This has the potential to set up a solid sell signal from above the zero line.
[S&P MACD Chart]
Even though the 4-Year Cycle “Sweet Spot” gains are less than average so far, weighed down by the headwinds discussed below, the market has held up quite impressively. There is still work to be done, but technically things have become constructive the past two weeks, finding support, and clearing some near-term resistance. Most impressively, the NASDAQ 100 (NDX) is at fresh recovery highs, up 21.4% from its December 28 close. That could be considered a bull market in many books.
Looking at the S&P 500’s technical picture in the chart below you can see that at the height of the banking crisis the S&P found support around 3800 near the old downtrend line from the January high and above its December lows. Then it cleared the old support level we had previously highlighted at 3980 which is just about equivalent to the 200-day moving average. The relief rally has now put S&P above its 50-day MA and is trying to clear some minor resistance around 4050. After that we see resistance around 4100, 4180 and 4300 near the August highs.
[S&P Technical Chart]
Remaining calm during the banking crisis selloff appears to have been prudent, but we are not out of the woods yet. Our outlook remains cautiously bullish with our base case scenario of below average pre-election year gains of 10-15% still in play. However, monetary, economic, political, and geopolitical uncertainties are likely to continue to mute the usually robust pre-election year gains. 
Central bankers, government officials, and the big banks intervened on a global scale to avert a full-blown banking crisis. They appear to have stemmed the bleeding for now, but this is a wake-up call for regulators to dig into all those banks that fall under the $250 billion cap. There is still a lingering concern as to what will turn up and what may be clawed back.
Earnings season is just around the corner. Expectations on The Street are not high, but the earnings slide is projected to bottom out in Q2. As noted on page 40 of the 2023 Almanac and in last week’s April Almanac traders and investors tend to be focused on first quarter earnings and guidance during April. With expectations low, upbeat company guidance and positive surprises would lift stocks in April.
A favorable reading tomorrow from the Fed’s preferred inflation metric, the Personal Consumption Expenditures Price Index (PCE) that shows inflation retreating and is better than expected would buoy stock prices at least in the near term. Many are betting on a Fed pivot from interest rate increases to cuts if inflation shows signs of subsiding. 
We believe there will be signs inflation is coming down, but that the Fed will pause and not pivot so quickly. CME’s FedWatch Tool currently shows a 51.5% probability of no change in rates and 48.5% for a quarter point hike. A pause vs. a cut would allow the Fed to retain (or regain) some of its integrity as the steward of the economy and a prudent inflation fighter. Fed Chair Powell would love to be known as the new Volcker.
The banking crisis may have been averted, at least for the time being. The war in Ukraine drags on, but it still appears to us like a protracted Cold War 2.0 scenario that the market has shrugged off. The earnings trough may indeed be ending. But! Let’s be devil’s advocates here. We cannot forget about the looming debt ceiling crisis. It is the same political set up as pre-election year 2011: Democratic President with a split Congress composed of a Democratic Senate majority and a Republican House majority. 
This created a standoff between the White House and House Republicans much like what’s developing in 2023. Markets topped out on the last trading day of April 2011 and entered a mini-bear phase with S&P down 19.4% on a closing basis before bottoming on October 3. 2011’s Worst Six Months were negative with the Dow down 6.7% and S&P down 8.1%. NASDAQ’s Worst 4 Months July-October were down 3.2%. S&P finished the year essentially flat at -0.003%, Dow was up 5.5%, NASDAQ was off 1.8% on the year.
With all the uncertainty and headwinds having the potential to continue to take a bite out of the usual pre-election year gains, heeding the Best Six Months MACD Sell Signal when it triggers will likely be the most prudent course of action. So now is the time to review your portfolio and get prepared to lock in these BSM gains we have, sell losers and tighten up stops.
Pulse of the Market
Despite a historically solid record of gains in March, DJIA’s struggles have persisted. After being the “least bad” index of 2022, DJIA is the laggard this year. As of the close on March 29, DJIA was down 1.30% year-to-date and was up just 0.19% in March. S&P 500 and NASDAQ have performed much better, up 4.90% and 13.95% respectively this year. DJIA closed below its 200-day moving average (1) for the first time since last November in March. This year’s laggard performance has also caused DJIA’s 50-day moving average to reverse and is currently trending lower.
But, DJIA appears to have found support in the second half of March and recent gains have brought it back above its 200-day moving average. This change in momentum is confirmed by both the faster and slower moving MACD indicators applied to DJIA (2). Both MACD indicators turned positive right after mid-month and have been bullishly trending higher. This is potentially a great setup as we head into DJIA’s historically best month of the year and pre-election years, April.
Dow Jones Industrials & MACD Chart
Bullishly the losses incurred during DJIA’s third Down Friday/Down Monday (DF/DM) of 2023 were relatively quickly reclaimed (3). Based upon our past research, the sooner DJIA bounces back, the less likely further substantial market declines were. Further DJIA gains would confirm the worst of the regional bank mini crisis is over.
After getting crushed in December, NASDAQ has been up in nine of the last twelve weeks (5). Tech leadership has helped S&P 500 advance in seven weeks this year (4). It is encouraging to see technology shares leading the way higher. However, for the rally to gain real, sustainable momentum, participation needs to be broader. 
One indication of participation improving was last week’s number of NYSE Weekly Advancers exceeding Weekly Decliners (6). In the week prior S&P 500 and NASDAQ enjoyed solid gains but breadth was negative as Weekly Decliners outnumbered Weekly Advancers by over 2 to 1. We will be watching for this week’s gains to be accompanied by positive and expanding breadth.
Following the brisk decline in Weekly New Highs and the rapid expansion of Weekly New Lows (7) in early March, this trend has also bullishly reversed. Look for New Weekly Highs to continue to expand and New Weekly Lows to decline for confirmation that the rally is going to persist into April.
Treasury bond yields still reflect the fact inflation is running hot and the Fed is in tightening mode (8) with short-date maturities yielding more than longer-date bonds. Inflation remains an issue, but bank stability is even more important. Recent failures are likely to refocus the regulatory light and could lead to further tightening of lending standards by the banks. Should banks pull back on lending, the Fed may not need to go as high with interest rates or remain at those higher levels longer. The market would likely welcome a less aggressive Fed.
Click for larger graphic…
Pulse of the Market Table