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The Bull Lives – At Least for the Next Few Weeks

Published 04/09/2018, 02:05 PM
DJI
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For many investors, it feels like they're living in a moment of madness.

The headlines are fueled by anxiety.

Tech stocks are getting crushed... The next tweet could target anyone.

A looming, unsettling possibility of a trade war between the U.S. and China lurks at the beginning of each trading day.

During an eight-day span over the past two weeks, the Dow Jones Industrial Average (Dow) had seven days of at least a 1% move up or down.

And that doesn't even include all the intraday gyrations (like when the Dow opens down 500 points and ends the session up more than 200, or vice versa).

The markets have already entered correction territory multiple times in 2018 due to all of this.

Correction Territory

It's been a roller coaster - a whipsawing market that's threatened to buck investors from their saddles.

But for short-term traders and options traders, these are the times they live for. Markets that move in one direction are boring. And prices can be unattractive.

For everyone else, not so much (as is evidenced by all the texts and emails I'm getting).

But there could be an oasis on the horizon. (And I don't mean the popular English rock band fronted by the tumultuous Gallagher brothers from the 90s.)

I'm talking about an oasis of positive momentum.

For the next few weeks, investors will "definitely maybe" enjoy a different tune than what they heard during the last days of January, February and March.

Because one of the most consistent trends traders and investors can count on comes in the month of April.

Dow Gains

April gains have practically become a "gimme."

Now, to kick off April trading this year, the Dow did suffer its worst loss to begin the month since 1929. And with the way things have been going recently, there's no telling what will spark the next sell-off.

But there's an old trader adage I like, one that my colleague ETF Strategist Nicholas Vardy recently referenced too: "The trend is your friend."

Since 1993, April has been the best-performing month for Dow components. And 2005 was the last year the Dow ended the month of April down.

To illustrate that consistency: That's 12 consecutive years of gains spanning three U.S. presidents.

That's a better streak than American Idol's consecutive years as No. 1 in TV viewing rankings... and longer than the Boston Celtics' championship run from 1959 to 1966.

Over the past 25 years, the Dow has closed out April with a monthly loss only six times. No other month on the calendar is nearly as strong... or as consistent.

So why has April's performance been so good, regardless of Bush (not the other popular English rock band from the 90s... but Bush 41), Clinton, W., Obama or Trump?

It really is the changing of the season.

Fourth quarter earnings reporting takes place in February and March. Depending on the sector, these reports can be rough. The first quarter ends on the eve of April Fools' Day.

Investors then position themselves based on all the data that's available... and optimism leads the charge into first quarter earnings, which begin in earnest later in the month (which is also why May tends to be such a downer).

As a trader – a trend trader specifically – consistency is how the most money is made. April has been the best month for the Dow over the past 25 years...period.

And it gives a momentary respite before the dreaded "summer lull" (easily visible in the chart above).

So investors can rest easy that April has consistently produced gains. But from there, the path gets a little bumpier.

Good investing

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