Business Confidence and Stocks | Focus on Stocks: April 2024
Here comes the answer to a very old question, "Do stocks lead the economy, does the economy lead the stock market, or is there something else?"
My work has shown numerous times that GDP is not a good predictor of the Dow Jones. Also, business inventories and a host other measures of business almost always top out and bottom after stocks do. It is as if the tail wags the dog -- instead of the economy, the Dow is about as good of an indicator as there is to forecast recessions.
Right here, then, I will answer that age-old question; stocks lead the economy.
There is something else, though, that leads stocks from the business community. Surveys measuring business owners' confidence in the future topples all the other indicators used to suggest the path for stocks. I am not about to tell you the specific index; I am really fed up with people ripping off my research. But I will tell you the data is publicly available, for free, each month online from a private organization.
The next seven charts reveal the relationship between the Dow Jones, in black, and the cycle of business owners' confidence in the future shown in light blue. What's not shown, and not needed, is the actual survey of business confidence. It is the cycle of confidence that matters. There seems to be some innate emotional pattern of optimism/pessimism going on that drives business. It appears there is a natural ebb and flow of emotions, the heartbeat of the business community.
Let's take a look:
Obviously, the Dow is in black while the blue line represents the cycle of confidence. The key here is the blue line is known in the future. The highs and lows in the cycle are a leading indicator, as we can project cycles out into the future. In a moment, you will see the projection out to 2030. For now, though, just focus on the tight fit between the Dow and the cycle high and low projections. Take a long hard look; you will be pleasantly surprised to see how confidence leads stocks.
Keep in mind I am not using any stock market data here for the projection. The cycle is based on exogenous data. What we have here is what most kids these days want to be -- an influencer.
In this chart, we advance into the 1970s, perhaps the most difficult trading/investing period since 1929. 1970 ended a bear market, and then the real killer came along in 1972, finally ending in late 1974. Amazingly, the cycle of confidence nailed the end of the debacle. Keep in mind the blue line projection was known years in advance.
The next decade was much easier for Wall Street Warriors, as price stopped the yo-yo markets of the 70s and trended. Had one used this particular cycle to forecast the time entries, profits would have accrued.
Investors were treated to another massive trend move in the 1990s -- almost any indicator that said buy was correct. By and large, the confidence cycle did well in spotting the best times to go long.
The next 10 years look a lot more like the 1970s, with big rallies and declines clearly indicated in advance by the cycle forecast. I expect we will see this trendless pattern appear again in the not-too-distant future. We have been in a massive trend up move, and usually what follows is years of sideways action with a slight bullish bias.
What a nice trend move we had for the next decade, and what excellent points to buy, marked off by lows in the cycle of confidence as stocks worked in phase with the cycle. Again, those cycle low points were known several years in advance.
Well, gang, here we are, up to date. Above is the cycle projection into 2030. Perhaps you now have more clarity to the bull market we are in, as well as when to expect all this fun to end... around 2026 or so. A major takeaway is that, between now and late 2025, business will get better. There will be more people with more jobs, and rates will go lower.
Let the good times roll. This is not a time to be a bear -- that time is coming, but not now.
What to Expect in April
Above is what happened last April. It should give you an idea of how the Dow can move in conjunction with the seasonal as it has usually traded in April. Last year was a pretty good fit.
In Chart 9, we see the most probable path the DJIA (as well as rest the market averages) will wander around this April. Expect a rally into mid-month, then a decline.
The key here will be to watch to see if price this year is stronger or weaker than the pattern. That's what I will be watching, like a hungry hawk. We have kind of a plan A here and a plan B. Keep in mind though there are lot of other letters in the market's alphabet.
Getting Specific for April
Next is my tabulation for buying the S&P 500 E-mini futures contract on the night session opening of each trading day for all Aprils in the last quarter of a century.
April has long presented traders with a reliable short-term bounce -- strangely enough, just after people pay/file their USA income tax on April 15th. I have been writing about this trade since the late 1970's; this baby has legs.
The optimal trade has been to buy on the opening of the 11th Trading Day (Session) in April. The results here used a stop loss of $2,500 per futures contract. Only one contract was traded. The position was exited on the first profitable opening after being in the trade for 2 trading days.
Higher accuracy comes from exiting after holding for only one day, certainly a trade short term traders should consider this month.
April for ETF Traders
If you don't trade futures, you can find this bias in the SPY, the ETF for S&P 500. Table 3 shows the best trade has been to buy on the opening of the 9th trading day in April, using a 4.5% stop and exiting on first profitable opening after 5 trading days in the position.
TSLA Too
Tesla has usually run out of energy in April. Chart 10 is the stock with the seasonal pattern. Expect a bounce around April 4th for a few days, then down.
It certainly did last April.
April 2022 also saw a selloff. I suspect there are corporate announcements about this time each year. Do yourself a favor and scroll through prior Aprils in this stock.
Chart 12 is the projection for 2024. Expect strength early in the month, then a decline. The weaker the early rally, the better for short sellers.
Apple Biased to Rally
The first 2-3 weeks of April has usually been quite favorable to Apple owners.
Chart 13 is the seasonal pattern Apple will most likely follow this year. Let's see what this has looked like in the past:
Last year, Apple danced pretty much in tune with the pattern of early month strength, with a dip late in the month. This key stock also mimicked the seasonal pattern in 2021. Apple usually trend changes, getting above the highest high of the last 6 days.
Wealth is Not Health
Heart disease ... when you eat is as important as what you eat.
This says it best: "In an adult population free of major chronic diseases, habitual night eating was positively associated with the progression of arterial stiffness, a hallmark of arteriosclerosis and biological aging."
(See here; use unique identifier: ChiCTR-TNRC-11001489)
And this...
"Changing the evening mealtime of non-obese men from 6:00 PM to 10:00 PM significantly increased their markers for becoming obese and developing diabetes (J Clin Endocrinol Metab, Aug 1, 2020;105(8):2789-2802). They had higher blood sugar, higher insulin, higher cortisol levels, and reduced ability to remove and use fat from their cells. These are all major risk factors for obesity."
With these studies in mind, I looked at the countries with the highest rate of heart disease, finding them to be...
Heart Disease Rates by Country 2024
- Russia
- Hungary
- Romania
- Bulgaria
- Poland
- Czech Republic
- Argentina
- China
What do they have in common in terms of what they eat? China is sure not Russia, neither is Argentina! Could there be more to it than diet? Keeping in mind the above studies, I then looked to see what time they ate dinner in these countries. Here's the data.
Country What Time They Eat Dinner
- Russia 8 to 9 PM
- Hungary 7 to 9 PM
- Romania 8 PM
- Bulgaria 8 PM
- Poland 8 PM
- Czech Republic 8 PM
- Argentina 8 PM is early
- China 7 PM
I then searched for the countries that have the lowest incidence of heart disease only to discover the foods varied. France is not Korea, and Korea is not Monaco. Yet they did share one thing in common... they all eat an early dinner.
Country What Time They Eat Dinner
Japan - Okinawa Island 6:30 PM to 7 PM (healthiest of all countries)
Japan 5 PM to 6 PM
Korea 6 PM
France 7 PM to 9 PM
Hong Kong 7:30 PM
Monaco 7 PM to 8 PM
Clearly, what you eat does matter, but to my way of thinking this is compelling data to have your major meal of the day earlier rather than later.
In terms of supplements for many years I have taken Co-Enzyme Q 10, Magnesium and Vitamin E as further support for heart issues. Here is a good trailhead as to why I do this.
"Clinical evidence shows that CoQ10 supplementation for prolonged periods is safe, well-tolerated. CoQ10 supplementation reduces oxidative stress and mortality from cardiovascular causes and improves clinical outcome in patients undergoing coronary artery bypass graft surgery, prevents the accumulation of oxLDL in arteries, decreases vascular stiffness and hypertension, improves endothelial dysfunction by reducing the source of ROS in the vascular system and increases the NO levels for vasodilation."
And this...
In a randomized, double-blind, controlled trial, the effects of oral treatment with coenzyme Q10 (CoQ10, 120 mg/day), a bioenergetic and antioxidant cytoprotective agent, were compared for 1 year, on the risk factors of atherosclerosis, in 73 (CoQ, group A) and 71 (B vitamin group B) patients. After 1 year, total cardiac events including non-fatal infarction and cardiac deaths were significantly lower in the intervention group compared to control group.
Six years ago, I developed a good case of Arterial Fibrillation; I will discuss that next month. As always, keep in mind I have no medical training or background. This is just one trader's take on how to live longer and healthier. What works for me may or may not work for you. All bodies are similar, but different.
Still Not Time to Rush In
In looking at chart after chart, with a few exceptions I will discuss, cycle projections are saying the leading stocks are due for at least a pullback if not a whipping to the downside. Under the shroud of recent strength, a decline lurks.
Here, let me show you, chart by chart.
I will begin this walk-about among the charts with a look at the ETF (FNGO) for Facebook, Apple, Amazon, Google and Netflix, the FAANG stocks. My cycle projections here show a top is due April 6-8, with a decline lasting until late May. If this select group of stocks does decline, it would be way out of character to see the rest of the list rally.
Apple is the one most widely held stocks in the world. It's a snap to see what cycles are suggesting; a decline into late June... this is not a time to take a bite of the apple.
The most widely held stock in the world is Microsoft. Again, we get the same message from my study of cycles. An adjustment in price is about to happen.
The kingpin of the recent rally is NVIDIA, a company that just mints profits, gaining a wide speculative following. This is THE STOCK everyone wishes they had bought. While fame can be fleeting, I don't think that is the case here. The stock has a well-earned rest coming.
NVDA is has been a bullish trader's dream and the bear's nightmare. We can sidestep a lot of the unknown with the daily forecast that expects a short-term rally mid-month, then a very good buy point in early May.
AMD is a stock I follow only because so many of you ask about. It too has been a "leader of the pack" deserving our attention. Can cycles be wrong on this? You bet -- there are no perfect tools in this business -- yet they are the best thing I know to give us a glimpse of the future. The glimpse here is for a decline.
Another darling of the bulls has been LLY. It also is in that increasingly longer line of stocks getting ready for at least a dip, if not lots more.
Now, For Some Good News
There are a few stocks getting primed to rally. I will now focus on them.
The most widely held stock from the UK is Diageo, the $83 billion wine and spirits company. The stock has been in a long and steady decline that looks like it's about to end. I will have more about this in our mid-month meeting. Add it to your list if it is a stock you are not aware of.
Mr. Musk's consumption of ketamine, to avoid depression, has probably increased since last August, as TSLA has not been able to sustain any rallies. Hope is coming though in late April; this stock has a shot at a rally. Stay tuned for more details in our "Family Gathering" video session.
Google/Alphabet has a cycle low fast approaching at mid-month. Time to develop a plan of action.
Lululemon has also been a crowdpleaser, making lots of money from overpriced trendy so-called sportswear. Looks like rally time the middle of next month.
I touched on OXY during the March family meeting. Long from the 56 area, the 65-66 area should be used for taking profits, or a tight stop.
Target sidestepped the "go woke go broke" scenario with a few quick changes. The real key here is that they are just about a staple for women in the 25-45 age zone, with loyalty that is off the charts. We gave this a buy in the low 100s; take profits now if still long.
A Trade for April
I have been waiting a long time for this trade...
I made the above forecast for the bond market in late 2022; everything in yellow is out of sample. I noted back then an apparent low or buy point for the 30-year Bonds contract in mid-April 2024. I have patiently waited almost 18 months now to see if additional data confirms or rejects the notion of a cycle low at this upcoming juncture.
Here it is, hot off the press (so to speak), the current cycle forecast for bonds.
Oh my gosh! Just look at that... the projection for a cycle low is still there, with a mid-month low due about the 15th, give or a take a few days. Cycles, like everything else in trading, are not perfect. Notice the cycle in Chart 30 suggests a new low in price between now and then. That may take place. If price does not break to a new low, it is even more bullish, as it means price is bucking the cycle selling pressures.
If you are not a future trader...
You don't trade futures? Not a problem. There is an ETF you can trade or invest in. The symbol is TLT and Chart 31 is the cycle forecast. We see the same pattern; a low and rally coming up in April. More sophisticated traders could buy calls or write puts I suppose. That is not my game. I like to be net long or short.
A possible entry to consider would be any short-term down sloping trend line, or getting above the highest high of the last 7 or 8 days in either the ETF or actual contract.
Time to Go Shopping For Amazon
We may have a trade coming up in Amazon. Above, you see my cycle forecast using weekly data that suggests AMZN may start to rally at the end of April. Don't rush into this quite yet, but do take it off the backburner. I will focus on this one during our mid-month family meeting, as well as update with a daily forecast.
Market Timing
Let's wrap up this month's letter with stock market forecasts -- the best guess we have of what awaits us in the stock market's future.
I am very excited about a mid-May buy point. Hang in there gang, fireworks are coming.
In Closing
There's lots coming up...
By the middle of April, we should be able to focus on trades to take and more on market timing. At that point, we should have an ideal date for the next rally to start and a new stock I want to call to your attention.
In May's "Health is Not Wealth", I will finish up with heart issues and talk about the most important supplement I take.
This month's Family Gathering session will be held on April 18th at 2pm Eastern Time.
See you then!
Good Luck and Good Trading,
Larry Williams
If you have questions for Larry that you'd like addressed in future postings, please email familygathering@stockcharts.com.
