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It’s now 1PM on April 15th and most of you know that means income taxes are due today. There are several things going on with respect to tax day. First, people have put money in their IRAs, 401Ks, or other pension funds by now so that they would be set for tax day. Thus, April 15th tends to mark the end of the high season for the stock market. The large flow of funds into the market basically stops today, and generally May through November tends to be a down time for the market.
However, the market this week has suddenly moved from a flat, sideways market to what may now be the second phase of the secular bull market. Let’s look at the major averages:
|
Average |
Week on April 15th |
For 2005 |
|
Dow Jones Industrials |
-3.6% |
-6.5% |
|
S&P 500 |
-3.1% |
-5.6% |
|
NASDAQ 100 |
-5.1% |
-13.1% |
First, all three averages are down on the year. In the early April commentary, I said all of the averages were down on the year, but I basically said the markets were flat. I also remarked that the major averages had only had one or two weeks involving significant movements of 2% or more. Well all of that changed this week. Half of the decline for the year occurred this week in the Dow and the S&P 500. All three averages are down significantly. And all three averages are down by the required amount to signal the first entry in our bear market mutual fund strategy – and despite being in red light mode since July 2004 – this is the first
strong entry signal we have gotten. Is this the start of the second wave of the secular bear market? Only time will tell, but it is really starting to look ominous and it is definitely time to protect yourself.
Remember that we have been in a red light mode in the stock market since July of 2004. Since that time we have had seven interest rate hikes. This is quite like the 1999 period. We basically went into red light mode when the Federal Reserve started increasing interest rates in May of 1999 and had six rate increase. The stock market went up through most of that period, but started to collapse in March 2000 just after the sixth increase.
If you decide to follow the signal and the market has a strong upside reaction after today’s blowout – so much the better – you’ll get a good price. |