Please take a moment and register for our member’s only webinar, April 2024 Outlook and Update on Wednesday April 3, 2024, at 2:00 PM EDT here:

 

https://attendee.gotowebinar.com/register/5072455495928375382 

 

Please join us for an Almanac Investor Member’s Only discussion of recent market action with time for Q & A at the end. Jeff and Chris will cover their outlook for April, review the Tactical Seasonal Switching Strategy ETF, Sector Rotation ETF, and Stock Portfolio holdings and trades. We will also share our assessments of the Fed, inflation, the “Best Months” as well as relevant updates to seasonals now in play.

 

If you are unable to attend the live event, please still register. Within a day of completion, we will send out an email with links to access the recording and the slides to everyone that registers.

 

After registering, you will receive a confirmation email containing information about joining the webinar and a reminder message.

 

 

3/28/2024: Dow 39807.37 | S&P 5254.35 | NASDAQ 16379.46 | Russell 2K 2124.55 | NYSE 18312.67 | Value Line Arith 10551.11

 

Seasonal: Bullish. April is #1 DJIA month by average performance since 1950, 2nd best S&P 500 month and 4th best NASDAQ (since 1971). In election years, performance and rank softens slightly, 3rd best DJIA and S&P 500 month, 6th for NASDAQ, but remains bullish. April is the last month of DJIA and S&P 500 “Best Six Months.” NASDAQ’s Best Months run through June. Our Seasonal MACD Sell can trigger anytime on or after April 1. Members will be emailed after the close when Seasonal Sell triggers.

 

Fundamental: Holding Up. As of the March 26 update, the Atlanta Fed’s GDPNow estimate stands at 2.1% for Q1. This is a slowdown from Q4 2023, but still a reasonably solid number that is not too hot. Employment data is resilient with unemployment at 3.9% and 275,000 new jobs added in February. March’s employment numbers are anticipated to be good with no change in the unemployment rate. Corporate earnings forecasts are improving. Inflation has been warmer than forecast and a return to the Fed’s stated 2% target does not appear likely until the second half of 2024.

 

Technical: Stretched. Five straight months of gains with continued new all-time closing highs. Thus far dips have been brief and shallow, but momentum does appear to be slowing. MACD indicators applied to DJIA, S&P 500 and NASDAQ have been trending sideways to lower confirming the slowing pace of gains. Other technical indicators hover around or at overbought levels depending upon index. Additional gains are possible, but the bulk of the seasonal move is likely done.

 

Monetary: 5.25 – 5.50%. After the most recent meeting, the Fed appears to be on a path to begin cutting at their June meeting despite recent inflation data that did not meet expectations. Either the Fed views the recent pickup in inflation as another transitory event or they are beginning to move the goalposts for their official target as our forecasts suggest 2% is further away now. Nonetheless, the market currently appears satisfied with the Fed. Any disappointment could be the catalyst for some typical, seasonal weakness in late Q2 or Q3.

 

Sentiment: Cautious. According to Investor’s Intelligence Advisors Sentiment survey Bullish advisors stand at 60.6%. Correction advisors are at 24.2% while Bearish advisors numbered 15.2% as of their March 27 release. High levels of bullish sentiment have persisted for months now. This is not unusual as market tops tend to develop over time, weeks to months not days.

 

Monday is the beginning of the last month of the “Best Six Months (BSM)” (November-April) for the Dow and S&P 500 – and what a banner one it’s been so far. From our Seasonal MACD Buy Signal on October 9, 2023, through yesterday’s close (March 27, 2024), DJIA is up 18.32% and S&P 500 is up 21.05% – more than double the historical average BSM gains. Our Best Six Months Seasonal MACD Sell Signal can trigger anytime on or after the first trading day of April, which is Monday April 1st this year. NASDAQ’s Best 8 Months end in June, which is up 21.62% since our buy signal, not quite double the average but give it time.

 

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 1, 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 have been flatlining, oscillating between a positive and negative histogram (pink highlight), for months indicating waning momentum as the rally has marched higher. This is the beginning of our shift to a more cautious “Worst Months” stance. We remain bullish for 2024, but we suspect the bulk of the next leg up will transpire in the latter part of the year after some consolidation and/or weakness during Q2-Q3. 

 

 

 

Let’s first address the stellar start to the year and what that indicates for the rest of the year. With the S&P 500 up just over 10% for Q1 2024 that is the best start to a year since 2019. In the table below we have listed the eleven other years since 1950 that have gained 10% or more in the first quarter of the year. Overall, the remainder of these years is solid. The 1987 Crash stands out as the big blemish. Following the rally off the 1974 low 1975 suffered a 14.1% summer correction from the mid-July peak to the mid-September low but finished the year with the 5th best gain since 1950. In general, the market took some sort of breather during the last three quarters of these years, but except for 1987 all finished strong.

 

 

 

But this is a great start to an election year, the third best election Q1 since 1950, and that is significant to us. In the following table we have separated the previous 18 election years by Q1 performance. The top seven are above average Q1 gains (see Fourth Quarter Market Magic, 2024 Almanac, page 82). The middle four are positive “average” gains. The bottom seven are Q1 losses. With election year 2024 closing out Q1 today with a gain of 10.2% let’s focus on the top section that this year’s market falls into.

 

The top three years, where 2024’s performance lies, show clear weakness in April and May with some additional weakness in Q3 or Q4. Additional gains over the Last 9 Months of the year were limited in these top three years. In 1956 the market was impacted by turmoil surrounding disputes regarding the Suez Canal and Hungarian Revolution. In the other years the market suffered a soft patch or more at some point over the Last 9 Months of these years. All but 1956 finished the year higher than the close of Q1.

 

 

For even greater perspective we have added the line of these seven Top Q1 Election Years to our S&P 500 Election Year Seasonal Pattern chart in red. Note the dip in April and May, the chop in July and August and how these years have marked time until the election in November, gaining about 2.5% on average over the seven months from April to October. 

 

 

The market has been on a tear since late October, up five months in a row and up solidly in each. We have logged one of the best first quarters in history and that bodes well for the year as a whole and is in line with our continuing bullish forecast for 2024. The 4-Year Cycle and seasonality continue to fire on all pistons. The market will not track these cycles and patterns this closely all the time, but while they are it is prudent to heed them. And what they are telling us now is that while we see no sign of impending doom or a major sell off, the bull market rally is ready for a bit of a respite. 

 

The big rewards we have reaped this Best Six Months and year-to-date so far have not left much on the table until later this year. Risks are more elevated now. Sentiment continues to run high. Valuations are extended. Geopolitical tensions have not eased. And persistent inflation pressures have the Fed in no rush to cut rates. As the election campaign rhetoric heats up and the Best Six Months comes to a close be prepared to shift to a more cautious stance when we issue our Best Six Months Seasonal MACD Sell Signal. We do not expect a bear market or major correction. We do not Sell in May and go away. We sell some things, tighten stops and consider defensive positions if warranted. So, keep an eye on your inbox for our Best Six Months Seasonal MACD Sell Signal.

 

 

DJIA continued higher throughout March finishing the month with a 2.1% gain and Q1 with a 5.6% advance. DJIA’s performance in March is well above its historical election year average March gain of 0.2%. Q1 performance is solid, but only good for 24th best Q1 by percentage since 1950. As unusual or extraordinary as it may feel, DJIA’s performance so far this year is still not an unprecedented record. Aside from a few new all-time highs (1) in March, DJIA will have to continue its quest for 40,000 in April.

 

DJIA’s pace of gains has slowed with the 50-day moving average (black line) moving closer to its daily closing prices. This waning momentum is being confirmed by both the faster and slower moving MACD indicators that peaked late last year and have been slowly trending back toward the zero line. As of today’s close, March 28, DJIA’s slower moving MACD sell indicator is positive (2). Additional modest upside is possible in April, DJIA’s historically best month of the year, but the majority of seasonal gains have most likely already been delivered.

 

 

After advancing in 15 of 17 weeks from late November through the week ending February 23, DJIA (3) has declined in three of the last four, while S&P 500 (4) and NASDAQ (5) declined twice in the same period. DJIA and S&P 500 advanced this week, NASDAQ did suffer another mild decline. Market dips continue to be shallow and brief, but the pace of gains has also slowed.

 

Market breadth over the last four weeks has been generally fair. NYSE Weekly Advancers (6) have outnumbered Weekly Decliners in three of the last four weeks. Last week had the biggest weekly gains and the greatest number of Weekly Advancers. Last month we were looking for a broadening of the rally with an expanding number of Weekly Advancers. Aside from last week’s mild improvement, it still appears participation is sporadic.  

 

Bullishly, there was an improvement in the number of New Highs (7) as they reached 590 during two separate weeks in March. This is the highest level of New Highs since June 2021 when they hit 781. The actual peak in New Highs in 2021 occurred during the week ending March 12 at 951. Even if New Highs have peaked, the rally could continue. The pace and frequency of gains will likely continue to slow though. Ideally, more Weekly Highs would likely mean a stronger rally.

 

Recent inflation data has been a bit warmer than expected and as a result the 30-year Treasury bond yield has resumed its climb modestly higher (8). Market weakness ahead of mid-March did cause the 30-year bond yield to dip but its yield rebounded to the highs of the year last week. Whether the 30-year yield goes higher or not is going to largely depend on upcoming inflation data.

 

 

April is the final month of the “Best Six Months” for DJIA and the S&P 500. The window for our seasonal MACD sell signal opens on April 1, the first trading day of the month. From our Seasonal MACD Buy Signal on October 9, 2023, through yesterday’s close (March 20, 2024), DJIA is up 17.58% and S&P 500 is up 20.50%. Fueled by interest rate cut expectations and AI speculation, these gains are approximately double the historical average already and could continue to increase before the “Best Months” come to an end.

 

 

As you can see in the above chart of the recent 21-year market performance in April and election years since 1950, the month has been nearly perfect with gains steadily building from the first trading day to the last with only the occasional and minor blip along the way. NASDAQ and Russell 2000 election year performance is hindered by losses in 2000. April 1999 was the first month ever to gain 1000 DJIA points. However, from 2000 to 2005, “Tax” month was hit, declining in four of six years. From 2006 through 2021, April was up sixteen years in a row with an average gain of 2.9% to reclaim its position as the best DJIA month since 1950. DJIA’s streak of April gains ended in 2022’s bear market. In April 2023, DJIA gained 2.48%. April is now the second-best month for S&P 500 and fourth best for NASDAQ (since 1971).

 

The first trading day of April and the second quarter has enjoyed notable strength over the past 29 years, advancing 21 times with an average gain of 0.31% in all 29 years for DJIA. However, five of the eight declines have occurred in the last eleven years. The largest decline was in 2020 when DJIA declined 4.44% (973.65 points). Other declines were in 2001, 2002 and 2005. S&P 500’s record on April’s first trading day matches DJIA, 21 advances in 29 years. NASDAQ’s recent performance is slightly weaker than DJIA and S&P 500, but the day is still bullish for technology stocks in general with more advances than declines during the same period. April’s second trading day has also been notably strong over the past 21 years.

 

The last trading day of April has exhibited a bearish bias over the last 25 years. DJIA has declined 18 times with an average loss of 0.34% in all years. S&P 500 has declined 17 times, average loss 0.38%. NASDAQ and Russell 2000 have been nearly as weak on the last trading day, both down 15 of the last 25.

 

The first half of April used to outperform the second half, but since 1994 that has no longer been the case. The effect of April 15 Tax Deadline appears to be diminished with bullish days present on both sides of the day. Traders and investors appear to be more focused on first quarter earnings and guidance during April.

 

Historically bullish election-year influences (the second-best year of the four-year presidential election cycle) are muted in April. Average gains since 1952 for DJIA and S&P 500 slip modestly lower but remain reasonably solid. Russell 1000 has been best in election years, up eight times out of eleven with an average gain of 2.0%.

 

 

Monthly options expiration week frequently impacts the market positively in April and DJIA has the best track record since 1990, with an average gain of 1.19% for the week with just eight declines in 34 years. The first trading day of expiration week has a slightly better record (based upon average gain) than expiration day while the week is generally marked by respectable gains across the board. However, DJIA, S&P 500, NASDAQ, and Russell 1000 have all declined the last two years during the week of April’s monthly option expiration. The week after has a softer long-term record, but still leans bullish.

 

 

 

First half of March trading has been mostly in line with its seasonal pattern over the last 21 years. There has been plenty of chop with S&P 500, NASDAQ and Russell 1000 drifting higher while DJIA and Russell 2000 have moved lower. As of today’s close, S&P 500 is up 1.06% thus far this month. Russell 1000 is not far behind, up 0.93%. With today’s (mostly) modest declines, NASDAQ is hanging onto an 0.23% gain, but DJIA and Russell 2000 are both in the red, down 0.23% and 1.15% respectively.

 

 

Looking at the above chart, we see tomorrow is the Ides of March and over the last 21-year period, the market has tended to rally afterwards. Having avoided typical seasonal weakness in February and in early March, this upcoming period of strength could already be factored into the market, and we could experience more chop and churn. Historically, the week after quarterly options expiration in March has been prone to weakness. Plus, the Fed is scheduled to meet next week. Even though it is widely expected that they will not be changing the Fed Fund’s Rate, everyone will still be looking for clues as to when they may begin cutting rates.

 

This AI-fueled bull market has enjoyed solid gains since last October and will likely continue to push higher in the near-term, but momentum does appear to be waning with the pace of gains slowing. With April and the end of DJIA’s and S&P 500’s “Best Six Months” quickly approaching we are going to begin shifting to a more cautious stance. We maintain our bullish stance for 2024, but that does not preclude the possibility of some weakness during spring and summer.

 

 

Per February’s Stock Portfolio update, all remaining positions in the Free Lunch portfolio were closed out using their respective average prices on February 9. The entire basket’s performance through the close on February 9, was essentially unchanged, down –0.42%, since mid-December excluding any dividends and trading fees compared to a 4.0% gain by NYSE Comp and 7.9% by NASDAQ Comp over the same period. Absent a solid January Effect where small-cap stocks solidly outperform large-caps, actively trading Free Lunch stocks appears to be the best strategy when compared to a buy and hold approach. 

 

 

Over the past five weeks through yesterday’s close (March 13), S&P 500 climbed 3.4% higher while Russell 2000 advanced 6.2%. Over the same period the entire stock portfolio advanced 4.5% excluding dividends, any interest on cash and any trading fees. Mid-caps were responsible for the bulk of overall portfolio gain, advancing 10.9%. Large caps were second best, climbing 8.9%. Small caps were the only drag, slipping 5.8% lower.

 

The primary drag on small-cap performance was Virco Manufacturing (VIRC). Shares of VIRC had been performing well, up over 70% on February 8, but were hit hard one day later and failed to recover. VIRC was closed out of the portfolio when it closed below its stop loss on February 13 for a 37.5% gain. There was no apparent news that may have triggered the selloff on February 9, other than the filing of a 13G, statement of acquisition of beneficial ownership by individuals, with the SEC. This form is used to report when a party owns over 5% of a company. Compared to the previous 13G filed, it appears the party had been accumulating shares. The sell-off may have just been the result of aggressive profit taking.

 

 

Jumping into the Mid-cap stocks, Amphastar Pharmaceuticals (AMPH) was stopped out of the portfolio on the last day of February. Earnings appeared to be fair with modest beats of top and bottom-line expectations, but apparently this was not sufficient. AMPH has continued lower with little sign of a bottom yet.

 

Axcelis Tech (ACLS) was also stopped out when it closed below its stop loss on March 13. ACLS did participate in the AI rally early on, but it appears management may have ended the run. After eight straight quarters of solid revenue and earnings growth, they forecast essentially flat to negative performance in their first quarter and similar performance for the full year 2024 compared to 2023 (https://investor.axcelis.com/news-releases/news-release-details/axcelis-announces-financial-results-fourth-quarter-and-full-17). This was the second time ACLS was in the portfolio. The previous trade was a success, having gained over 100%.

 

Super Micro Computer (SMCI) continues to defy gravity and its stellar run pushed it over $1200 last week. As of its close on March 13, it was up 725.1% in the portfolio after selling half of the original position when it first doubled and up 1350.1% from its original price when it was added in November 2022. SMCI is on Hold. Considering recent volatility and bullish momentum, we are removing its stop loss. Should SMCI prove it is a real deal AI company, then it could go significantly higher over the longer run. For those that are more active traders, its near-term volatility could provide ample opportunity.

 

Other notable bright spots in the portfolio over the last few weeks include Reliance Steel & Aluminum (RS) and nVent Electric (NVT). RS is now up 63.5% since addition to the portfolio. As we anticipated, RS did not have any issues beating expectations when it released earnings in February. NVT made a new 52-week high today and was up 40.3% as of March 13 close. RS and NVT are on Hold.

 

All remaining positions not mentioned above are on Hold. Please see table below for updated stop losses.

 

 

For those who were unable to attend the member’s only webinar on Wednesday, the slides and video recording are available here (or copy and paste in a new browser window: https://www.stocktradersalmanac.com/LandingPages/webinar-archive.aspx). Jeff kicked off the webinar with a quick recap of how bullish the market has been since last October with four straight months of gains, November through February. Historically, strength like this has been a positive with more gains to follow, but in the near-term sentiment has gotten stretched and so have many technical indicators. Combined with March’s history of volatility, the market does appear susceptible to a modest seasonal pullback. Should a perfectly healthy pullback occur, it could be just the “dip” to add to existing positions or establish new positions as it is an election year, the second-best year of the four-year cycle. 

 

Important election year perspectives can be found recapped on page 26 of the 2024 Almanac. Historically, the first five months have been better when the party in power retains the White House, the market has been stronger when a sitting president is running for re-election, there have been only six election-year DJIA declines going all the way back to 1896 and only two losses in the last seven months of election years since 1950. Even if the market does take a breather, all these bullish election year forces remain in play for the rest of the year.

 

 

There are two sectors that begin their seasonally favorable periods in March: Infotech and Utilities. As we detail in the Stock Trader’s Almanac 2024, on page 94 “Sector Seasonality”, we typically present trade setups in advance of when the seasonality begins. This year we are going to look to take advantage of any seasonal weakness in the first half of March to establish new positions associated with these sectors.

 

In the following weekly bar chart of the Utility Sector Index (UTY), seasonal strength (lower pane, shaded in yellow) typically begins following an early or mid-March bottom and usually lasts through early October although the bulk of the move is typically done sometime in late May or early June. Recent volatile trading has impacted the seasonal pattern. Typically, the pattern is less choppy as the sector does not usually experience major price swings in a year. Utilities tend to be a defensive sector of the market and historically have seen gains during the “Worst Six Months,” May through October. Should the Fed begin cutting rates later this year, it could spark renewed interest in the Utility sector and its dividends.

 

 

With over $12 billion in assets and ample average daily trading volume, SPDR Utilities (XLU) is our top choice again to consider holding during Utilities’ seasonally favorable period. It has a gross expense ratio of just 0.09% and a fair yield currently over 3%. Top five holdings include: NextEra Energy, Southern Co, Duke Energy, Constellation Energy, and Sempra Energy.

 

XLU could be considered on dips with a buy limit of $63.10. This price is just above its 50-day moving average (solid red line) and projected monthly pivot resistance level (red-dashed line in daily bar chart below). XLU has essentially been trading the opposite direction of the 10-year Treasury bond yield. When the 10-year yield soared higher last October, XLU plunged. As the 10-year yield retreated, XLU has been trending higher. Based upon its 25-year average return of 9.29% (excluding dividends and trading fees) during its favorable period mid-March to the beginning of October, set an auto-sell price at $75.86. If purchased an initial stop loss of $55.69 is suggested.

 

 

Our favorite ETF to trade Infotech’s seasonal strength from mid-March through the beginning of July is iShares DJ US Tech (IYW). Our existing position was up 21.9% as of the close on March 6. Any early-March weakness could be an opportunity to consider establishing a new position or add to an existing position. IYW can be considered on dips.

 

 

 

Two sector seasonalities are scheduled to end during March. The first is a Computer Tech short trade. We passed on this trade setup earlier this year and do not have a corresponding position. The second sector is Biotech. Sell iShares Biotech (IBB). For tracking purposes, IBB will be closed out of the portfolio using its average price on Friday March 8. IBB’s 12.5% gain through the close on March 6, is respectable and better than the sector’s average advance over the last 5- and 10-year periods (page 94 Almanac).

 

Last month’s new trade idea, First Trust Natural Gas (FCG), was added to the portfolio on February 5 when it traded below its buy limit of $22.52. With a 12.6% gain already, the Natural Gas sector appears to have bottomed right on seasonal schedule. FCG can be considered on dips below its buy limit.

 

Every position added last October was up double-digits as of March 6. Tech-related XLK and IYW were best up 22.1% and 21.9% respectively. SPDR Financials (XLF) are also performing exceptionally well, up 21.8%. Consumers may be getting fatigued, but consumer sector ETFs XLY and XLP are holding their own, up 10.5% and 11.8% respectively. It would seem betting against the consumer still does not work all that well.

 

Relatively newer trades related to copper and energy are beginning to show signs of gaining upward momentum. Crude oil continues to hang out just under $80 per barrel but will likely drift higher as the summer driving season begins to ramp up. Waning EV enthusiasm and geopolitical concerns would also suggest additional upside for energy stocks. Copper also appears to be firming as well after bottoming in October of last year. XLE, CPER and COPX can all be considered on dips.

 

iShares DJ Transports (IYT) completed a 4-for-1 split and began trading at its new price today. All associated prices have been adjusted to account for the split including its stop loss, auto sell, buy limit and its presented price.

 

In anticipation of some potential weakness in March, all other positions in the Sector Rotation portfolio can also be considered on dips below their respective buy limits in the table below. This applies if you do not have an existing position(s) or if you are looking to add to an existing position(s).

 

Please note, buy limits and stop losses have been adjusted to account for recent gains.

 

 

 

As of yesterday’s close, the Tactical Seasonal Switching Strategy portfolio had an average gain of 16.9% since our Seasonal Buy Signal. Invesco QQQ (QQQ) is the best performing position up 19.0%. SPDR S&P 500 (SPY), is the second-best performing position in the basket, up 17.2%. iShares Russell 2000 (IWM) surged to take the third spot, up 16.8% while SPDR DJIA (DIA) is now the laggard of the group with a 14.7% advance.

 

All four positions can be considered on dips. Buy limits have been updated to be consistent with current levels.

 

As a reminder, positions in the Tactical Switching Strategy portfolio are intended to be held until we issue corresponding Seasonal MACD Sell Signals after April 1 for DJIA and S&P 500 and after June 1 for NASDAQ and Russell 2000. For this reason, there are no stop losses associated with these positions. There is also a switching strategy outlined on page 64 of the 2024 Almanac that holds these positions through election years.