Breaking Down the S&P 500 April Anomaly

Summary

The speaker discusses the S&P 500's performance, noting its rarity to decline on the first three days of April since 1984, with only two occurrences in 2001 and 2002. They highlight the market's resilience and rotation, with sectors like energy and materials showing strength while technology and consumer discretionary take a breather. The conversation also touches on the importance of transportation stocks for economic indicators and the potential impact of the upcoming non-farm payrolls report. The speaker emphasizes the bullish rotation as a hallmark of a secular bull market and advises on the significance of copper's rise as an indicator of global economic activity.

Takeaways

• 📈 The S&P 500 managed to avoid a historical pattern of losing ground on the first three days of April, which has only happened twice before in the last 40 years (2001 and 2002).
• 📊 The speaker highlights an interesting stat: since 1984, there have been 10 instances where all three days in April have seen an uptick in the S&P 500, indicating a strong start to the month is quite common.
• 📉 Initial jobless claims were higher than expected, suggesting potential economic slowdown, but the market reacted positively to this news, with futures turning upward.
• 📈 The market showed resilience with the S&P 500, NASDAQ, and other indices rebounding despite short-term warning signs like overbought conditions.
• 📊 The speaker discusses various market sectors, noting that energy and materials have been performing exceptionally well, with energy showing a near-parabolic rise.
• 🛫 The transportation sector is highlighted as one that hasn't shown significant bullishness yet, with the speaker expecting it to break out and confirm the Dow Jones' new highs.
• 📊 The speaker emphasizes the importance of the 20-day moving average as a strong support line and a signal for potential market reversals.
• 📈 There is a bullish engulfing candlestick pattern observed on the iWM (Russell 2000 Index), which typically signals a potential bullish reversal.
• 🏠 The home construction group continues to show strength despite rising 10-year treasury yields, suggesting that the rise in yields is more related to inflation concerns than economic strength.
• 📊 The speaker discusses the concept of 'bullish rotation' in a secular bull market, where different sectors take turns leading the market higher, which is currently observed with technology and consumer discretionary sectors taking a relative backseat.

Q & A

What unusual statistic about the S&P 500's performance in April was mentioned in the script?

The unusual statistic mentioned is that in the last 40 years, going back to 1984, the S&P 500 has only lost ground on its first three days of April two times, in 2001 and 2002. The speaker found it interesting that the S&P 500 managed to avoid a third instance on the day the script was recorded.

How did the S&P 500 perform on the day the script was recorded?

On the day the script was recorded, the S&P 500 finished up about five points, which helped it avoid losing ground for the first three days in April, a rare occurrence in the past 40 years.

What was the market's reaction to the initial jobless claims report that came out on the day the script was recorded?

The initial jobless claims report came out higher than expected, but contrary to what might be expected, the market actually liked the news. Futures turned to the upside after the report was released, indicating a positive market reaction.

What is a 'bullish engulfing candle' and why is it significant in the context of the script?

A 'bullish engulfing candle' is a candlestick pattern used in technical analysis indicating a potential bullish reversal. In the script, the speaker mentioned this pattern in relation to the iwm (Russell 2000 index), suggesting that it was a positive sign for the market and could indicate higher prices in the near term.

How did the speaker describe the performance of the energy and materials sectors over the past five weeks?

The speaker described the performance of the energy and materials sectors as having a 'tremendous uptrend,' with energy's move being almost parabolic, indicating a very sharp increase in price.

What does the speaker suggest about the current state of the economy based on the performance of the home construction sector?

The speaker suggests that the economy might not be as strong as some believe, as indicated by the home construction sector's continued rise despite an uptrend in the 10-year treasury yield. This could imply that the rise in yield is more related to inflation than a strong economy.

What is the significance of the 'Golden Cross' mentioned in the script?

The 'Golden Cross' is a technical analysis term that refers to when a short-term moving average, such as the 20-day, crosses above a long-term moving average, like the 50-day. In the script, the speaker mentions it as a bullish signal, indicating that a prior downtrend may have reversed.

What is the speaker's view on shorting the market in the current conditions?

The speaker advises against shorting the market in the current conditions, emphasizing that one should not fight a secular bull market. Even if there are short-term signals that suggest a pullback, the speaker would not recommend shorting but rather suggest moving to cash or shifting from aggressive to defensive stocks.

What is the 'bullish rotation' mentioned in the script, and what does it indicate about the market?

Bullish rotation refers to the phenomenon where sectors that were not leading the market start to show strength while the previously leading sectors take a relative break. This rotation is a hallmark of a secular bull market and indicates a healthy and broad-based market advance.

What advice does the speaker give regarding trading commodities, especially in light of their recent surge?

The speaker advises traders to look at commodities relative to the S&P 500 on a long-term chart (about 15 years) to determine if the recent strength is a sustained trend or just a temporary blip. The speaker also recommends using a trailing stop to protect gains.

What is the speaker's view on the upcoming non-farm payrolls report and its potential impact on the market?

The speaker suggests that if the non-farm payrolls report comes in much higher than expected, it could drive yields back to new highs and potentially turn the market red. However, the speaker would prefer to see positive jobs numbers just below expectations or around expectations to keep the Federal Reserve on course for lowering rates later in the year.