Since 1950, April has Been the Best Month for Stocks!

Today's chart presents the Dow's average performance for each calendar month since 1950 (blue columns). As today's chart illustrates, it is not unusual for the stock market to perform well during the early part of the year.

Looking forward, the averages favor a continued stock market rally as the calendar month of April has been the best month for stocks since 1950, averaging nearly +2.0 percent.

After that, however, things tend to get a little dicier.

Of the five calendar months that follow the strongest month of April, four rank as the weakest average calendar month performers since 1950.


Read more here...
http://www.chartoftheday.com/20150401.htm?H

The Average NASDAQ and Russell 2000 Stock is Already In A Bear Market

There are no perfect stock market indexes that'll give you a complete picture of the state of the market.

Most market-watchers prefer the S&P 500 over the Dow Jones Industrial Average. But the fact that the S&P 500 is with striking distance of its all-time high of 1,897 belies the fact that many stocks in the index and in the market as a whole are way down.

"When we examine breadth in terms of new highs, more specifically stocks that are in ‘striking distance’ to a new high, we see a completely different picture," writes J.C. O'Hara, of FBN Securities. "Often at the end of bull markets, large cap stocks continue to rise and the smaller stocks begin to flatter."

The S&P 500 is cap-weighted, which means larger companies like Apple and ExxonMobil have a much larger impact on how the index moves.

"High cap stocks influence the averages more thus can mask internal weakness," continued O'Hara.

O'Hara's research found that the average S&P 1500 stock is down by more than -12% from their recent 52-week highs. The average stocks in the Russell 2000 and Nasdaq Composite are down by more than -20%, which means you can say they are in bear markets.

"Historically, this sort of divergence does not bode well for the longevity of a market’s upward inertia," said O'Hara. "We went back and examined instances where the market made a new high and looked at where the median stock sat compare to its high. Our data suggests that the current breadth reading is very unhealthy. Not only are new highs diminishing but we are seeing many stocks making new lows. This breadth divergence is a major concern."

O'Hara says this isn't necessarily a screaming sell signal.

"However the powerful message of “there is something wrong” should not go unnoticed," he cautions.


Read more: The Average NASDAQ and Russell 2000 Stock is Already In A Bear Market

Chart of The Day: The Dow's Average Year vs Its Average Mid-Term Election Year

Chart & Analysis Courtesy of Chart of The Day

Today's chart illustrates how the stock market has performed during the Average Mid-Term Election Year versus the average year.

Since 1950, the First 9 Months of the Average Mid-Term Election Year have tended to be Subpar (see thick blue line).

That subpar performance was then followed by a significant year-end rally.
 
One theory to support this behavior is that investors abhor uncertainty. To that end, investors tend to pull back prior to an election when the outcome is unknown.

Beginning in early October, however, the outcome of the election becomes increasingly apparent and investors respond by positioning their portfolios accordingly.


Chart & Analysis Courtesy of Chart of The Day

Dow Industrials Heading for A Test of 2007 High...

Lagging Small-Cap Stocks A Bearish Omen...

Both the Dow Jones Industrial Average (DJIA) and small-cap Russell 2000 closed at a 52-week high two weeks ago, and then the DJIA closed at another high last week while the Russell 2000 lost more than -1%.

Going back to 1979, this has occurred only 3 other times...

1. April 1, 1998, after which the DJIA lost more than -15% during the next six months, while never gaining more than +2.5%.

2. January 7, 2000, after which the DJIA lost more than -14% during the next two months, while never gaining more than +1.8%.

3. January 19, 2007, after which the DJIA lost more than -4% during the next two months, while never gaining more than +1.8%.

Typically, when small-cap stocks fail to lead the market, stock market advances are hard to come by and downside risk is above average.

Chart of The Day - Current Rally Remains Below Average

To provide some perspective to the current Dow rally that began nearly 20 months ago, all major market rallies of the last 110 years are plotted on today's chart. 

Each dot represents a major stock market rally as measured by the Dow.

As today's chart illustrates, the Dow has begun a major rally 27 times over the past 110 years which equates to an average of 1 rally every 4 years.

Also, most major rallies (73%) resulted in a gain of between +30% and +150% and lasted between 200 and 800 trading days -- highlighted in today's chart with a light blue shaded box.

As it stands right now, the current Dow rally (hollow blue dot labeled you are here) is still somewhat short in duration and below average in magnitude when compared to all the stock market rallies that occurred since 1900.

It is worth noting, however, that the current rally is in line with the more typical rallies (see light blue shaded box) of the past 110 years.

Chart & Commentary Courtesy of Chart of the Day

Chart of The Day - Average Monthly Gains for the Dow Since 1950...

Chart & Commentary Courtesy of Chart of the Day

Except for a brief counter-trend rally in July, the stock market has struggled since peaking in late April. Investors are concerned. 

For some perspective, today's chart presents the Dow's average performance for each calendar month since 1950. As today's chart illustrates, it is not unusual for the stock market to underperform during the May to October time frame with a brief counter-trend rally occurring in July.

It's worth noting that the worst calendar month for stock market performance (September) is upon us.

Also, note that the best 3-month period for stocks runs from November through January.

Chart of The Day - Dow Priced in Gold Suffers -80% Plunge

Chart & Analysis Courtesy of Chart of The Day

For some perspective on the stock market, today's chart presents the Dow divided by the price of one ounce of Gold. This results in what is referred to as the Dow/Gold Ratio or the cost of the Dow in ounces of Gold. 

For example, it currently takes 9.0 ounces of gold to "Buy the Dow." This is considerably less
(-80% less) than the 44.8 ounces it took to buy the Dow back in 1999. 

While the actual Dow currently trades significantly higher than its March 9, 2009 lows (currently up +60%), the most recent rally that occurred in the Dow priced in gold is fairly similar to several bear market rallies that have occurred since late 1999. It is also of interest that the Dow (priced in Gold) is once again testing resistance of its accelerated downtrend.

Post-Massive Bear Market Rallies: Historical vs.The Present

Chart & Analysis Courtesy of ChartOfTheDay.com

Today's chart illustrates rallies that followed massive bear markets. For today's chart, a 'massive' bear market is defined as a decline of greater than -50%.

Since the Dow's inception in 1896, there have been only three bear markets whereby the Dow declined more than -50% (early 1930s, late 1930s until early 1940s, and during the very recent financial crisis).

Today's chart also adds the rally that followed the dot-com bust during which the Nasdaq declined -78%. The current Dow rally has followed a path that is fairly similar to that of the Nasdaq rally that began in late 2002 as well as the Dow rally that began in 1942.

It is worth noting that after 300 (plus or minus) trading days the market moved into a trading range/choppy phase that lasted for a year or more.

Are We 10 years Into A 16-Year Secular Bear Market?

Last week, the Dow Jones Industrial Average rose above 10000—again.

Since March 16, 1999, when it first touched 10000 in intraday trading, the Dow has bounced over that threshold and back 63 times.

On Friday, the index closed 220 points below where it stood exactly 11 years ago.

This isn't the first time stocks have been stuck on a seemingly endless pogo-stick ride.

On January 18, 1966, the Dow hit an intraday high of 1000.50. It broke through the 4-digit barrier 3 more times that January and February, then faded. The Dow cracked 1000 again in 1972 and 1976, then fell back both times.

Not until December 1982 did the Dow finally hurdle above 1000 and stay there.

Are we 10 years into a similar 16-year secular bear market?

Jason Zwieg, Wall Street Journal
 
The Intelligent Investor: 11 Years and Counting - WSJ.com

Chart of the Day: Charteristics of Post-Massive Bear Market Rallies

Chart & Analysis Courtesy of ChartOfTheDay.com

Today's chart illustrates rallies that followed massive bear markets.

For today's chart, a "massive" bear market is defined as a decline of greater than -50%.

Since the Dow's inception in 1896, there have been only three bear markets whereby the Dow declined more than -50% (early 1930s, late 1930s until early 1940s, and during the very recent financial crisis).

Today's chart also adds the rally that followed the dot-com bust during which the Nasdaq declined -78%.

One point of interest is that the current Dow rally has followed a path that is fairly similar to that of the Nasdaq rally that began in late 2002.

It is also worth noting that each rally lasted from about 300 to 370 trading days and then moved into a trading range/choppy phase that lasted for a year or more.

In the end, the current post-massive bear market rally is by no means atypical.

Chart of the Day: Stock Market Rallies Since 1900

Chart Courtesy of ChartofTheDay.com

"The current Dow rally is well below average in both magnitude and duration."

The Dow made another rally high  in 2010. To provide some perspective to the current Dow rally that began back in March, all major market rallies of the last 110 years are plotted on today's chart. 

Each dot represents a major stock market rally as measured by the Dow. As today's chart illustrates, the Dow has begun a major rally 27 times over the past 110 years which equates to an average of one rally every four years. 

Also, most major rallies (73%) resulted in a gain of between +30% and +150% and lasted between 200 and 800 trading days -- highlighted in today's chart with a light blue shaded box. 

As it stands right now, the current Dow rally (hollow blue dot labeled you are here) has entered the low range of a "typical" rally and would currently be classified as both short in duration and below average in magnitude.
 

WSJ - Worst Decade in 200 Years for Inflation-Adjusted Returns

Many investors realize that stocks have been among the worst investments of the past decade. But they may not realize quite how bad the decade was, because most people forget about the effects of inflation.

Controlling for inflation takes extra work and makes stock gains look punier, so it is easy to see why stock analysts almost never do it. The media almost never do it either.

Despite its 2009 rebound, the Dow Jones Industrial Average today stands at just 10520.10, no higher than in 1999. And that is without counting consumer-price inflation. In 1999 dollars, the Dow is only at about 8200 and would have to rise another +28% or so to return to 1999 levels. Using today's dollars and starting at 10520.10, the Dow would have to surpass 13460 to get back to its 1999 level in real, inflation-adjusted terms.

Since the end of 1999, the Standard & Poor's 500-stock index has lost an average of -3.3% a year on an inflation-adjusted basis, compared with a +1.8% average annual gain during the 1930s when deflation afflicted the economy, according to data compiled by Charles Jones, finance professor at North Carolina State University. His data use dividend estimates for 2009 and the consumer price index for the 12 months through November.

Even the 1970s, when a bear market was coupled with inflation, wasn't as bad as the most recent period. The S&P 500 lost -1.4% after inflation during that decade.

That is especially disappointing news for investors, considering that a key goal of investing in stocks is to increase money faster than inflation.

But other things do get measured in real dollars. When economists report whether the economy is growing, they account for inflation. When analysts judge long-term gains in commodities such as gold or oil, they often adjust for inflation, noting that gold hit a record this month in nominal terms but remains far from its 1980 record in real terms. Because analysts almost never do the same with stocks, it leaves investors with an exaggerated view of their portfolios' performance over time.

"Looking at returns on a nominal basis can be very misleading," says Richard Bernstein, a former chief investment strategist at Merrill Lynch who is launching a New York money-management firm called Richard Bernstein Capital Management. He checks inflation-adjusted performance to monitor investments' real value.

Ominous Divergence Implies Caution

Charts courtesy www.StockCharts.com

The Dow Jones Industrials ($INDU), a proxy for blue chip stocks, closed at a new weekly cycle high (10,318) on Friday, November 20.

The Russell 2000, a proxy for the small-cap sector, posted a weekly close at 585, which was -5.1% below its Friday, October 16, 2009, close at 616.

That's not what we like to see. If blue chips are making new highs and small cap stocks are not, it creates a negative divergence, a non-confirmation that typically signals an end to an intermediate-term rally.

The healthiest stock market rallies occur when all of the major sectors and indices capture new highs in concert. When they don't, it typically signals that stocks will correct and/or begin moving in a sideways range.

And the most profitable and least risky rallies occur when small-cap stocks lead. That's because small-caps are considered the riskiest of the three capitalizations (large-cap, mid-cap and small-cap). And when investors are willing to bid small-cap stocks to new cycle highs, they are confident that the stock market and the economy are healthy enough to support one of the riskiest areas of the stock market. 

Other key sectors that DID NOT confirm the weekly new cycle high on Friday include the bank, brokerage, financial and semiconductor stocks.

Until these sectors and the smallcaps post new cycle highs along with the Dow Jones Industrials, the odds are high that the stock market will undergo a correction.