The Week Ahead Highlights from April 2011

 Notes for the week of April 26, 2011

A mid-week comment is in order here regarding the Gold and Silver markets. The gold (GLD) and silver (SLV) ETFs have been setting new highs. But the same can't be said for the gold and silver-related stocks. The XAU, the PHLX Gold/Silver Sector Index, comprised of many of the major mining stocks, touched last Decembers' all-time high in early April. It then immediately pulled back to the 50-day moving average. Last week, it make another attempt at the high, including a gap-up day on Tuesday. But yesterday, mining stocks sold off sharply.

XAU has set a lower-high, which could be the start of a sharper pullback:

chart courtesy of Worden − www.Worden.com

XAU may just pull pack to the 50-MA again. But it could be a more significant drop.

The story for gold and silver continued strength is quite strong. Some mining stock analysts however are forecasting the possibility of a shakeout of the 'weak holders' before a parabolic move up.

Whatever the case, be prepared for all possibilities. Looking at the individual mining stocks shows many that are weak. I believe it's likely the sector has further downside to go. PAAS, a silver stock, has just broken below its recent consolidation. It looks like a short at this point:

chart courtesy of Worden − www.Worden.com

Be careful about joining the precious metals bandwagon right now. A more significant pullback may be starting.

 Notes for the week of April 25, 2011

The seasonals over the next several weeks are mediocre for nearly all the major indexes and ETFs. The following seasonal chart for IYC, the iShares Dow Jones US Consumer Services ETF, shows a historically lackluster period coming up:

Over the next 10 weeks or so, IYC has fallen an average 2.5%, in 6 out of the past 10 years.

That's not a strong enough seasonal to trade on. But it shows the tailwind that's been behind a lot of stocks and indexes since last fall, as far as seasonal trends, isn't there in the near future. Most of the other major index and ETF seasonal charts look similar to IYC's chart.

The current top holdings in IYC are WMT (Wal-Mart), MCD (McDonald's), DIS (Disney), AMZN (Amazon.com), and HD (Home Depot). As usual, some of the individual stocks have good upward seasonals right now, and others have poor seasonals. Right now, I'm focusing more on just price chart patterns, looking for very short-term trades.

In last week's Focus List, for subscribers, I highlighted two stocks with good seasonals and sporting good reward-to-risk patterns on the daily charts. In the past week, the first is up 3.6% and the second is up 4.8%. The S&P-500 meanwhile is up 1.3%. Focusing on individual stocks with good price patterns and seasonal tailwinds is usually a reliable, profitable approach.

Keep in mind that there are a number of potential factors right now, each of which could trigger a major selloff. The S&P-500 still has not retaken its February high. Earnings reporting season is just starting. QE2 is due to end at the end of June. The debt limit is about to be hit, and I could come up with dozens more possible triggers. Be cautious initiating new trades, use smaller positions for example. Follow all open trades very closely. Stick to your trading plan.

For next week, I'll have the results of backtesting the Sell in May and go away theory on the major indexes, as well as baskets of stocks.

 Notes for the week of April 18, 2011

Technology has been looking weak, and it's not just because of Friday's drop by Google. While the DJIA, Russell 2000, Dow Jones Transport Average have recently set new 2-year highs (and the S&P 500 almost did), the NASDAQ Composite and the Q's (QQQ) could only manage lower highs. The semi charts look even worse. SMH (the semi ETF) and $SOX (the semi index) both fell below their 50-day moving averages and came back up to touch the MA's a couple times, but still haven't had the ability to break above.

Gold and gold-related stocks have been among the best performers recently.

The seasonals of most of the popular indexes and ETFs we follow are not showing much historical bias for a move in either direction. There are individual stocks that have good seasonals for the next several weeks. We cover some of these in the weekly Focus Lists available to our members.

In the next week or two I'll provide the backtest results of the 'Sell in May and Go Away' theory - its track record on specific indexes and collections of stocks. While some stock charts look poor right now, the overall bias of the market still seems to be upwards. That may change at the end of June when/if the Fed's Quantitative Easing stops, or if earnings overall are disappointing (remember that earnings season has just started).

 Notes for the week of April 11, 2011

This is a quiet week, seasonal-wise. The four major indexes, the Dow, S&P-500, NASDAQ, and Russell 2000 all show a weak upward bias, averaging between 1 and 2.5%, over the next six weeks. The win rate is not good enough to trade on, with gains only in 65 to 70% of the years.

I noticed something else. While there wasn't much difference in historical patterns over the next six weeks, the DJIA and the Russell 2000 had slightly better track records than the S&P-500 and NASDAQ. Interestingly, the daily charts show a similar, slight edge strength-wise. The Dow and the Russell have recently moved above their recent highs, and the S&P-500 and NASDAQ haven't been able to do that and appear weaker:

It'll be interesting to see how these four indexes do over the next several weeks.

As mentioned last week, OIH is the one seasonal standout, but not for long. The next two weeks have been very good for OIH. Using our backtesting engine to calculate how doing a two-week trade in OIH during this same period in previous years, we get theoretical results of:

Anything more than two weeks in the OIH, and you'd be overstaying your welcome.

 Notes for the week of April 4, 2011

The seasonals on nearly all the popular indexes and ETFs we follow are not showing much for the near future. OIH is perhaps the only interesting one, as I mentioned last week. Over the next 3 weeks, OIH has gained an average 6.1%, with gains in 9 out of the 10 years.

Aside from that, this looks like a quiet period, historically, coming up. Now as far as what may actually happen, that's another story. This week, Investor's Business Daily's Market Pulse Current outlook switched from Market in correction to Confirmed uptrend.

MarketWatch.com's Mark Hulbert indicated Friday that the DJIA/DJT may be about to give a Dow Theory bullish, all-clear signal. Larry McMillian of OptionStrategist.com states ... the major indicators are all back on buy signals, and that constitutes an intermediate-term buy signal for the stock market.

Possibly. The DJIA has gained 563 points, or 4.75%, in 12 days. It couldn't quite close above the February high, which, with the DJT setting a new highs, would constitute a Dow Theory buy signal. The S&P 500 and the NASDAQ Composite are still a bit away from setting new highs. But the Fed's printing presses are smokin', so 1500 Dow, here we come!

Even with weak seasonals on the general markets, you can still find good trades in individual stocks that have strong seasonals (I found several 80+% trade candidates for our members). But closely watch and manage your trades.