Earlier this month, StockTradersAlmanac, a widely followed investor newsletter, officially issued a “Best 6 Month MACD Seasonal Sell” signal for both (DJIA) and .
The move marked the beginning of what is traditionally considered the “worst six months” for these indexes.
Market commentators initially believed the signal came a little early, but said in a recent report that it proved to be “fairly timely.”
After five consecutive months of strong performance and gains twice the historical average, Almanac expected stock market gains to slow.
In fact, the S&P 500 index fell 5.5% from its closing high on March 28 to its closing low on April 19, consistent with the expected decline of 3% to 6%.
“We believe the pullback may not be over yet, and we could see further declines, at least in the coming months, fueled by headlines, rising interest rates, inflation data and technicals,” Almanac said in a new report. said.
What happens next for the S&P 500?
As April 2024 draws to a close, it seems clear that this will be the first decline in six months and will be recorded as a month of decline.
Historically, April ranked as the best month for the Dow Jones Industrial Average in terms of average volatility and the second-best month for the S&P 500. On Nasdaq and the index, April ranks fourth in average volatility, the newsletter highlighted.
“In general, April was a solidly bullish month for the market overall, with high average percentages and multiple gains across the board,” the paper wrote.
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“So a negative April is a cause for concern. If the Dow No. 1 goes down for the month, that could be significant.”
Considering the strong performance in Q1 2024, Almanac analyzed historical cases where April was weak after a strong first quarter.
The company noted that analysis showed a significant performance improvement. However, the weaknesses of the “worst six months” remain notable.
Notably, large sums were lost in certain years that followed this pattern, such as 1956 during the Eisenhower recession, 1981 at the height of the double-dip recession, 1987 during the market crash, and 2000 during the dot-com bubble burst. A loss has occurred.
Finally, because 2024 is a U.S. presidential election year, Almanac further narrowed the analysis to only election years with poor April performance.
“Stock prices have continued to struggle through the second and third quarters in recent years,” market commentators wrote.
“While the fourth quarter and last eight months were generally strong, it was not without significant damage in 1956, 1960, 2000, and 2012. He ran for re-election, but in 1960 and 2000 he was on the field.”
“No matter how you parse the strong gains of the fifth month and first quarter with the looming April losses, the market will be unlikely to deliver any significant gains until the fourth quarter.”
S&P 500 support and resistance levels
As the market correction gains momentum, Almanac analysts also revisited long-term technical charts dating back to 2022.
They highlighted the previous 4800 resistance level from the January 2022 high, which was eventually crossed in January 2024. This level is currently functioning as a support, Almanac said.
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“A rise to this level would represent an 8.6% decline from the closing high and an 8.8% decline from the intraday high,” they noted.
If the index falls below 4,800, there will be additional support around 4,700, near the 200-day moving average and January lows, resulting in a 10% correction. There is also further support at 4600, which coincides with last summer's highs and indicates a possible 12.5% correction.
“This degree of correction is not surprising given how far the market has come since the October 2023 lows and even the 2022 bear market lows,” the newsletter said.
“While today's selloff may look dire at first glance due to worse-than-expected GDP, inflation numbers, and weak guidance from the Magnificent Seven, it is not as severe as fearmongers would like you to believe. High-flying stocks are clearly ahead of the pack, and this is a pullback to more reasonable levels.”
