Monthly Market Review: April's Unexpected Decline and May's Outlook
April: A Downward Shift in the Market
April marked the first down month of 2024, with significant declines across major indices. The S&P 500 (SPX) fell by 218 points, the Nasdaq (NDX) dropped by 721 points, and the Russell 2000 (Russel) declined by 150 points. Typically a mild or upward-trending month, April's downturn was influenced by macro-political issues that escalated market volatility, continuing the exuberant price actions from the previous month.
May Forecast: Debunking "Sell in May and Go Away"
Contrary to the old market adage "Sell in May and go away," the last 10-15 years have not supported this strategy statistically. May tends to be a highly volatile month, with movements ranging from +5% to -5%, usually ending with an average change of less than 2% up or down. The month often starts on an upward trend, contributing to heightened market activity.
Technical Analysis: A Glimmer of Hope for Bulls
Despite the overarching downward trend observed over the past three months, the last ten days have shown sideways to upward movements, reigniting bullish hopes. The end of last week saw a positive shift with the formation of a long dragonfly doji candle, a bullish indicator if followed by upward price action in the subsequent week. However, the bearish sentiment still shadows the recent bullish movements, indicating that bears are still a dominant force in the market. Key price levels for the upcoming week include bullish targets at 5152 and 5208, with bearish supports at 5075 and 5026. With May known for its volatility, the SPX could oscillate within a range of 5211 to 4949, likely ending with a minor net change. The daily Moving Average Convergence Divergence (MACD) has crossed upward, suggesting a potential buying opportunity, though a short-term pullback to around 5075 could set the stage for further bullish activity.
Market Breadth and VIX Analysis
The Volatility Index (VIX) currently sits at a low range of around 13, hinting at possible upward movements in market volatility. The Fear and Greed Index remains steady at 40, aligning with last week's market conditions. Most breadth indicators continue to signal fear, with the Bullish Percentile Index still reflecting bearish sentiment, not fully confirming the recent bullish price actions.
Market Correlation Insights
Last week, major indexes showed high correlation, predominantly in the upper 80s. The USD and volatility displayed an inverse relationship with the market trends, while other variables aligned positively with the market's movements.
Next Week's Market Drivers
Significant economic indicators and reports such as PMI, unemployment rates, construction data, retail sales, industrial production, and ECB announcements are on the horizon. These factors are crucial as they encapsulate broader economic health and can significantly influence market behavior.
Anticipated Market Movements
| Symbol | Up | Down | Delta |
|---|---|---|---|
| SPX | 5192 | 5058 | 67 |
| NDX | 18172 | 17602 | 285 |
| RUT | 2072 | 1996 | 38 |
Conclusion: Navigating Uncertain Waters
As we move into May, investors should approach the market with cautious optimism. The persistence of volatility necessitates a vigilant and strategic approach, especially in interpreting and responding to significant economic indicators. Monitoring these developments closely will be crucial for navigating the potential market fluctuations and capitalizing on the opportunities that volatile conditions often present.