George Brooks: Good Time to Gauge the Intensity of Today's Strong Market Open

George Brooks  |

Brooksie’s Daily Stock Market blog: An edge before the market opens.

Wednesday, April 6, 2011 9:24 am EDT

DJIA: 12,393.90
S&P 500:1332.63
Nasdaq Comp.: 2791.19
Russell 2000: 853.31

If institutions sell into today’s rally, it would be a warning that the advance in the market is due for a rest. Speculative fever is nevertheless mounting, and this kind of momentum is going to be tough to shut off.

Wall Street doesn’t appear to be worrying about a government shutdown, though opinion is divided on Fed policy, whether it will withdraw from a policy of stimulating the economy during the second half of the year, and eventually have to take measures to counter inflationary pressures.

Compromise has almost always been the way big decisions are made in Washington, this time should not be an exception. No one ends up totally happy, no one gets everything their way. The market is telling us today, there won’t be a shutdown.

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Q1 earnings appear to be the driver of this market. Obviously, anything short of the Street’s projections would result is a nasty correction. Looking a few weeks ahead, this may be a good month to lock-in some profits, ahead of the end of the market’s “Best Six Months,” a recurring pattern detailed articulately in the Stock Trader’s Almanac.

According to the Almanac, since 1050, an investment on November 1 with a sale on April 30 produced results for the DJIA 12 times better than a corresponding investment between May 1 and October 31. Results for the S&P 500 were significantly greater where an investment in the S&P during the best six months was 72 times better than during the worst six months.

Not all years are comparable, distortions occur, nevertheless, the pattern is consistent enough to have serious merit.

The Best Six Months appears to have started earlier last year with liftoff in early September, two months ahead of schedule. This could increase the odds that this year’s “Worst Six Months” will occur on schedule, especially if accompanied by a drift (or perceived drift) to a more restrictive Fed policy.

Just a forward thought: The summer months could be bumpy but investors rewarded by the beginning of yet another Best Six Months in the fall.

George Brooks

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