U.S. Stock Market - April 19th Week In Review

Given the exceptional gains posted this year so far, last week’s losses in the U.S. stock market must be considered relatively modest. However, major asset allocation decisions probably need to be made now given the negative seasonal bias immediately ahead for equities. In 2010, 2011, and 2012, there were significant corrections that began in the first week of May. Except in 2011 where the correction was -21.58% in the SPX, the May highs were eventually exceeded by year-end. The current bull market, which began in March 2009, is now about 50 months old. It’s been a great run, of course, but I think it’s done now. While the topping process, which began last week, may take another week or two, I think the record intra-day highs set two weeks ago at SPX 1,597.35 and Dow 14,887.51 now represent significant intermediate-term tops.

Here are Friday’s closing marks, with changes from Thursday’s close, and also with changes on the week, respectively:

                                                              Friday’s Change                          Weekly Change

DJ Industrial Average               14,547.51       +10.37     +0.07%        -317.55            - 2.14%

S&P 500 Index                           1,555.25       +13.64     +0.88%        -  33.60            - 2.16%

NASDAQ Comp.                        3,206.06       +39.69     +1.25%        -  88.89            - 2.70%

Russell 2000 Index                        912.50       +10.99     +1.22%        -  30.35            - 3.22%

DJ Trans. Average                      6,034.14       +89.98     +1.51%       -109.61            - 1.78%

Gold ETF                                       135.47       +  1.17     +0.87%        -    8.48            - 5.89%

Silver ETF                                       22.40       +  0.00       unch           -    2.88            -11.39%

In the latest semi-annual Barron’s “Big Money” poll, a record 74% of money managers indicated they were bullish on stocks. Weekly sentiment gauges are also one-sided in the bullish camp, with the exception of the AAII survey. Maybe individual investors will get it right this time, as bears outnumber bulls for the latest two weeks running. If you view these latest sentiment results as contrary indicators, then on balance they must be viewed as bearish for U.S. stocks ahead.

Gold/Silver

As you can see by the results above, gold and silver prices dropped sharply last week. It seems to me that the precious metals arena is the most hated investment option right now and that Wall Street analysts are tripping over themselves to release bearish advisories on gold, silver, and any related investments. The Goldman Sachs commodities research team, led by Jeffrey Currie, has done a very good job at keeping its clients on the right side of this market this year so far. Goldman cut its outlook for gold prices in December 2012, and then cut again in February 2013. And on April 10^th, the Goldman team actually recommended a short position in Gold (perhaps one bridge too far for Goldman?). SoGen also got it right in this market (so far). Morgan Stanley and Bank America have recently jumped on the bearish bandwagon, albeit a bit late probably. Is it possible that all these recent Wall Street analyst downgrades to Gold are setting the stage for the next major up leg of this massive 13-year bull market?

As readers of this column know by now, I have a strong recent interest in the Gold/Silver market and related investments. Gold is down about 30% from its record high of $1,923.70 as posted in September 2011, and silver is down more than 50% over the same period. Despite negative views by Goldman Sachs and other Wall Street "giants", I am extremely bullish on this market. In fact, I think gold/silver mining stocks will more than double over the next 18 months. In the interest of full disclosure, I am long the following Gold/Silver stocks and ETFs: AG, EXK, GG, and GDXJ. Will the panic lows from last week (April 15^th) represent a launching point for the next bull market in this market? No one knows, of course, but I think so.

Bottom Line: Last Thursday, April 18^th, if someone told you that IBM would be down 8.28% the next day, what would be your view on the reaction in the broader market? The fact that the S&P 500 Index was actually UP 0.88% on Friday, April 19^th, is nothing short of incredible to me. Given Friday’s solid gains in the overall U.S. stock market, it’s probably not a stretch to expect some upside follow through early this week. However, I don’t anticipate a strong advance, and I definitely don’t see the April 11^th record highs broken anytime soon. By the end of this month (Tuesday, April 30^th), I expect to see the U.S. stock market in full retreat.