Phases & Cycles Market Outlook – April 06, 2021
The markets had quite a rise from the depth of the “flash/crash” on 27th March, 2000 to last Friday, April 1st, and it wasn’t an April Fool’s joke. As of last week, the NASDAQ (NASD) appreciated 93.1%, the S&P 500 (SPX) rose 77.6% and Toronto (TSX) kept up with a 66.5% gain. The move consisted of three parts, a rising period between March and early September, a flat trading range from there to the end of October and another rising part to last week. This last part should continue to mid-April, the usual date for the first quarter earnings announcements, before the “sell in May and go away” period sets in.
The first quarter of 2021 began with a strong January. Both the “First five days of the year” and the “January Indicator” gave bullish signals which means, based on their reliable predictions, that 2021 should be a bullish year. February gave us numerous exciting days: shortsqueezers drove some stocks up to unbelievable heights, followed by similar drops. March brought a surprise: the TSX gained 7.3%, outperforming both the SPX at 5.8% and the NASD, which had some negative days near the end of the quarter, at 2.8%.
The Advance/Decline Index continued to rise through the quarter. The VIX, which reached 37.50 at the end of January, ended the quarter at 19.40, showing low risk. At the same time, there were three negative signals. The “Stocks above their 10-week Moving Averages” (courtesy of Investors Intelligence) declined from 88.5% on February 9th to 61.6% at the end of March suggesting that some stocks were already in a corrective mode; the American Association of Individual Investors’ (AAII) statistics (a contrary indicator) showed the bulls rising from 37.4% in early February to 51% by the end of March; and near the end of the quarter some days had more Declining Stocks than Advancing ones even on days where the Indicators closed higher for the day.
OUTLOOK
As the charts on next page demonstrate, the SPX and the TSX have been in an upward-trending channel since the end of October, 2020. This period, to the end of April, is named by the Stock Traders’ Almanac the “six best months of the year”. The SPX and the TSX have been undulating within the top and the bottom line of the channel and it would not be a surprise, given the statistics quoted above, if both Indices would, from about mid-April, decline once again to the bottom of the channel.
This would be a well-deserved pause, a corrective period following the gains of the last six months but definitely not a major decline in the market. Some stocks may even reach new highs during this period.
PAC-20-198; MKT-501; April 06, 2021
Ron Meisels
Phases & Cycles Inc., 4000 Boul. De Maisonneuve West, Suite 2010, Montreal, QC, H3Z 1J9
Tel.: (514) 393-3653. E-mail: RonMeisels@phases-cycles.com
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This article was prepared by Phases & Cycles Inc. and does not necessarily reflect the opinion of iA Private Wealth Inc. The opinions expressed are based on an analysis and interpretation and do not constitute an offer or solicitation to buy or sell any of the securities mentioned. The information contained herein may not apply to all types of investors.