Do you like the big rally? Watch out for May
It's great the Dow and S&P 500 have hit new highs and the Nasdaq is at a 12-year top. But beware the post-April slump.
Wednesday was what stock market people call a breakout. That's too polite. It was a big freakin' breakout.
The Dow Jones industrials ($INDU) and the Standard & Poor's 500 Index ($INX) hit new closing and intraday highs. The Nasdaq Composite Index ($COMPX) had its best close since November 2000.
Now the question is what happens next. Stocks were mostly rallying Thursday. The Dow closed up 63 points to a record 14,865. The S&P 500 added 6 points to 1,593, also a record, and the Nasdaq managed a 3-point gain to 3,300, its best finish since November 2000. This despite weakness among Microsoft (MSFT), Hewlett-Packard (HPQ) and Intel (INTC). (Microsoft is the publisher of MSN Money.)
But the more important question is what happens after the end of April. For the past three years, the market has swooned starting around the end of April. The swoon can last as little as a month or as much as five months. And it startles investors.
In 2012, the Dow dropped nearly 9% between May 1 and June 4. In 2011, between April 29 and a decisive bottom on Oct. 3, the decline was 16.8%. The 2010 swoon, between April 29 and July 2, was 13.3%. And the Dow's gains for each year: 7.3% in 2012, 5.5% in 2010 and 11% in 2010.
The S&P 500 saw similar drops and ended 13.4% higher in 2012, flat in 2011 and up 10.2% in 2010.
Most analysts have long been expecting a market pullback. The problem is they've confidently called the imminent arrival of the pullback for at least three months.
The market, however, has largely ignored warnings that cuts in federal spending, the European debt crisis, the Cyprus banking crisis or tensions in Korea would doom the rally.
At some point, the warnings will be correct. The odds favor a correction starting at the end of April, possibly because it will be clearer that sequestration -- the imposition of federal spending cuts -- is taking a bite out of the economy.
The Stock Traders Almanac reminds us that the market's worst six months start on May 1. From 1950 through 2011, the Dow gained an average 0.3% between the end of April and end of October. The average gain between the end of October and end of April: 7.5%.
It is quite possible the market will enjoy a decent April. Wednesday's rally and the continuation on Thursday is a reason. With Thursday's close, the Dow and S&P 500 were up 2% and 1.5% for the the month. The Nasdaq was up 1%.
For the year, the Dow is up 13.4%, with the S&P 500 up 11.7% and the Nasdaq up 9.3%.
It wasn't just that the Dow and the S&P 500 closed at record levels on Wednesday. It was the energy with which both indexes reached intraday highs.
At its high of the day, the Dow was up 153 points, or 1.04%. The S&P 500 at its peak was up 1.3%. The gaps between the prior close and the day's high were the highest in percentage terms since Jan. 2.
But the Dow Jones Transportation Average ($DJT) and the Russell 2000 Index ($RUT) are down 1.5% and 0.5% in April, respectively. The latter two are watched closely because they tend to lead the market.
One more concern: Gold (-GC). The metal was up $6.10 to $1,564.90 an ounce after falling to $1,558.80 on Wednesday. Gold is down 6.6% for the year. Some analysts believe the tumbling isn't done yet.
More on Top Stocks
The market could go up for a while, but then it's going to go down for a while.
Remember, you heard it here first.
Yeah, like a stopped clock
How about tea leaves do they say anything?
"The market seems to touch the 200 day moving average every 6 months or so. Given that the Dow is up around 12% year to date, we ARE due for a pullback. I'm moving to cash for the next 90 days. Hopefully I don't regret it."
Too late. You are talking technical aspects... all Bernanke knows is duct tape and a siphoning hose. That giant sucking sound you hear is our existence getting blown away by bad banks and rotten QE.
Ben Bernanke, during his appearance before Congress on March 4, 2009:
Senator Sanders: “Will you tell the American people to whom you lent $2.2 trillion of their dollars? … Can you tell us who they are?”
It's all corrupt. Truth is found in the 2nd amendment.
"Something really fishy is going on here and everyone knows it."
The statement of the day! There won't be any mercy... they have killed America and done irreparable harm and damage. What kind of psychopath bails banks, bad business platforms and administrative degrees ahead of everyone else who would have been integral and instrumental in a recovery? If it's as stupid dumb as- Ivy League collusion or a Skull and Crossbones Club, I sense some genetic purging that's likely way overdue globe-wide. Where do you run to once you've screwed the whole world?
And when one ride is over, the money has to go somewhere.
Only fools put it in a mattress.
Banks are almost as bad.
If you were selling off all that ammo you bought--that's where the profit is right now.
You can only buy so many beans and bandaids.
The money has to go somewhere.
Real estate is jumping here in Phoenix.
The key is to be first in line for the next big thing--not be the last guy buying.
Copyright © 2014 Microsoft. All rights reserved.
Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.
4 analysts downgrade the stock the day after a disappointing quarterly report.
VIDEO ON MSN MONEY
Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.
Contributors include professional investors and journalists affiliated with MSN Money.
Follow us on Twitter @topstocksmsn.