Image Source: Pexels

Interesting stats to begin the new week. When the stock market decline more than 1% on the 4th Friday of the month the next 7 days are usually up significantly. On top of that, April begins tomorrow and we know that when April starts the month in a downtrend like today, the month averages +2.5%. That’s a powerful seasonal tailwind.

Last Wednesday I wrote that I thought it was an opportune time for the bears to come out. I thought the market could pull back before the bulls mounted another rally attempt. What I did not envision was the magnitude of Friday’s decline which was significant. I heard the pundits and media blaming the warmer than expected inflation number. As usual, the masses are dead wrong. It’s becoming beyond embarrassing.

Walk with me on this. If the stock market declined so precipitously because of inflation, then why did bonds rally so sharply when inflation is the primary nemesis? You can see the yield chart below which is the inversion of bond prices. Bonds rallied and yields fell not because of inflation and certainly not because of tariffs. It goes back to the growth scare I have been writing about since mid-February. And by the way, bonds yields (interest rates) are poised to fall a lot more than what we’ve seen so far.

(Click on image to enlarge)

Turning to stocks, I think we can eliminate the second most likely scenario from contention. That was the one where stocks did not pull back and went straight up to S&P 6000 where I thought the rally would fail and lead to a whole other leg lower. Below is the S&P 500. Recall that my most likely scenario had stocks rallying off the March low and then seeing another decline to somewhere around 5500 in April where the decline would look complete. That remains the most likely case.

(Click on image to enlarge)

The stock market is not out of the woods yet. I fully expect a probe below the recent March lows. If we see that occur on less downside velocity that would be a strong indication that the decline has lost momentum and the bulls are about to make noise.

On Wednesday we bought QID. We sold QLD, UWM, XSMO, PCY, EMB and some MQQQ. On Thursday we bought KIE, IMOM, QLD, UWM and more MQQQ. We sold QID.

More By This Author:

Bears Coming Out? Inflation Data Now Partisan
Eliminating One Scenario
Three Scenarios For The Next Few Months