Author: Kenley Scott

In the post-WW2 era, the market has seen the phrase “Sell in May and Go Away” carry merit. Since 1950, the Dow Industrial Average has gained an average of 7.7% in the November to April periods versus 0.7% on average in the May to October period. It has also held true that the third year of the presidential cycle has by far the best average (*November-April counts as whichever year April is in, i.e.: November 2022-April 2023 is counted as 2023).

The global market uptrend is under pressure for the first time since early-to-mid-January when the Vanguard Total World Stock benchmark (VT) fell 3% to near its 50- DMA. The 50-DMA held in that case and the index was back to new highs just four days after hitting lows. This time, the 50-DMA did not hold and the VT index is below for the first time since early-November. We will be looking for a quick snapback and retake of the 50-DMA and 21-DMA as another risk-on signal. For now, however, we are proceeding with increased caution.

The U.S. market has enjoyed a significant rally since the end of October 2023. On an intraday basis, from the October 27 lows to highs reached two weeks ago, the Dow Jones Industrial Average is up 23%, while the S&P 500 and Nasdaq Composite indices are up 28% and 32%, respectively. We shifted the market status to an Uptrend Under Pressure on Thursday last week as it was the first time the three indices closed below their 21-DMAs at the same time since early January. In that case, the indices retook the 21-DMA within a couple of days and made new highs shortly thereafter, and we moved back to a Confirmed Uptrend. This time, the break was more clear, and although the S&P 500 and Nasdaq were back above the 21-DMA as of Friday, the Dow was not. Should the S&P 500 and Nasdaq indices settle back above the 21-DMA for a few days, we could upgrade the market, while another break below the 21-DMA would leave a 50-DMA test likely.

Looking at bull markets from the post-WW2 era-on, we noted two weeks back that the current bull market is not exceptional in terms of its gain to-date. On both the DJIA and the Nasdaq Composite, it is well below the median performance through the first ~17 months. However, there have already been some huge winners. Here we will take a look at how some of these cycle winners compare with what we call “model book” winning stocks of past cycles (using DJIA). For winning stocks, we used buy points as a breakout from some sort of consolidation while the peak of the move is the high before a base or long-term moving average is undercut.