Peak March: Why the 3rd Month is a Good Market Indicator
The US stock market advanced yet again yesterday…for the 15th time in 18 trading sessions. Share price gains have become so routine that share price losses have become a distant memory. Sure, stock prices could fall in theory, but not in practice. At least that’s how it feels today.
But memories are short…especially investment memories. So let’s take a brief stroll down memory lane. The Dow’s 103-point advance yesterday lifted the Blue Chip index to its highest level since September 26, 2008. On the very next trading day, September 29, 2008 the Dow plummeted 778 points and shifted the financial crisis into high gear.
But that’s all over now. We’re back to where we started, pre-crisis, and all is right with the world…or at least less wrong. Curiously, very few of the world’s major stock markets have followed the US to new post-crisis highs. In fact, very few of the world’s major stock markets are advancing at all.
“South Korea, Japan, China, BRIC 40, EAFE Index, and the MSCI Emerging Markets Index have all failed to confirm the US move to a new high,” observes David Rosenberg, economist extraordinaire with Toronto’s Glusken Sheff & Associates. “Either they are all screaming buys and destined to play catch-up or they’re telling you to take some chips off the table in terms of your cyclical US portfolio.”
Rosenberg clearly favors the latter interpretation.
“This is a market being driven by a few buyers, no sellers, a lack of fundamentals (outside of an economic backdrop being fueled by government-applied steroids) and technicals,” he says. “A good friend notified me that many important recent tops have occurred in the month of March.”
Yes, it’s true, dear reader. March is as bad a month for the stock market as it is for Roman Emperors. Rosenberg cites the following examples:
August 1999 to the March 2000 peak – followed by the market/Internet collapse into October 2002.
September 2001 to the March 2002 peak – followed by a 35% decline into October 2002 (interesting that the S&P 500 is trading very close to that March 2002 peak once again).
March 2003 to the March 2004 peak – followed by a 9% decline in to the August 2004 low.
August 2004 to the March 2005 peak – followed by an 8% decline into April 2005.
March 2009 to the March 2010 peak?
Unfortunately, the third month of the year is not the only adverse chronological tendency weighing on the stock market. Decennial years on the Gregorian calendar are also a problem.
Citing the work of Mary Ann Bartels at Merrill Lynch, Rosenberg notes:
Years ending in ‘0’ are the most negative of all decennial years (averaging a 6.9% annual loss) with an intra-year or correction of 22%
Mid-term election years since 1930 average a 20% intra-year decline (with peaks around March and bottoms around September).
The prior four mid-term election years ending in ‘0’ (’30, ’50, ’70, ’90) averaged intra-your corrections of 26%.
Jay Shartsis, an options trader with R.F. Lafferty in New York, shares Rosenberg’s cautions perspective. Citing a completely different collection of financial market tealeaves, Shartsis relates, “An important measure of option speculation is now in deep space. If one takes the number of bullish option transactions (buy calls, sell puts) and compares the total to that of bearish option trades (buy puts, sell calls), the results reflect the highest level of option trader bullishness in years, perhaps ever recorded.
“Note that the current level is far beyond what was seen at the Grand Top in 2007,” Shartsis continues. “Hard to believe. This is only one indicator, but an important one I think, and it suggests a severe whipping of the bulls is coming soon.”
Net-net, the observations of Messrs. Rosenberg and Shartsis provide ample cause for concern.