'Super seven' days to invest; Last 4 trading days in March, first 3 in April

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'Super seven' days to invest; Last 4 trading days in March, first 3 in April
By Don Vialoux

Stock markets in the United States have a history of moving higher during the last few trading days of the month and first few trading days of the next month. Is history about to repeat?

SEASONAL INFLUENCES

According to Thackray's 2010 Investor's Guide, the seven best performing days of the month for the S&P 500 Index based on data since 1950 are the last four trading days in the month and the first three trading days in the next month. Thackray calls them “Super Seven Days”.

Several events happen during Super Seven Days that favourably influence equity markets: – Portfolio managers complete “window dressing” transactions before month end.

Most of these transactions occur at the end of a quarter before release of public reports revealing portfolio content. Portfolio managers want to report that they owned the best-performing securities in the quarter. Accordingly, they tend to buy or add to outperforming securities just prior to month end. – Institutional investors, knowing that they will receive money from pension plans on the first day of each month, begin to invest funds as early as three days prior to month end and continue to invest during the first few trading days in the next month. – U.S. equity markets have a history of outperforming just before and after statutory holidays. Most of these holidays, including Memorial Day, Independence Day, Thanksgiving Day and New Year's Day occur at month end.

During these periods, institutional investors leave early on holidays and cede influence on equity markets to individual investors who tend to take a bullish stance. – Related to Super Seven Days is a period of seasonal strength connected to the quarterly earnings report cycle. According to Thackray's 2010 Investor's Guide, the U.S. equity market outperforms during the first 18 calendar days of January, April, July and October. Strength is related to anticipation of calendar quarterly earnings reports. Best of the four periods is April.

A study from 1950 to 2008 shows that the S&P 500 Index gained an average of 1.40% per period during the first 18 days in April. The trade was profitable 72%of the time.

FUNDAMENTAL INFLUENCES

A series of events this year suggest that equity markets during Super Seven days starting March 26 have a higher than average chance of profitable. In addition, chances are high-er than average that strength will continue into mid-April.

U.S. economic news from March to be reported in early April will support higher equity prices. March economic data will compare favourably with February data that was hurt by bad weather.

The March U.S. employment report to be released next Friday will set the stage. Consensus for March nonfarm payrolls is an increase of 200,000.

However, consensus estimates likely are conservative because the U.S. government hired more than 100,000 people in the month to complete the 10-year census program.

Consensus estimates show that calendar first-quarter earnings reports by major U.S. and Canadian companies will record substantial gains relative to depressed earnings in the first quarter last year.

Consensus estimates for S&P 500 companies currently show a 37% gain on a year-over-year basis.

In addition, many companies likely will offer positive guidance for the second quarter and the remainder of 2010 reflecting a recovery in the U.S. and Canadian economies.

Sectors expected to record the strongest year-over-year earnings gains on both sides of the border include energy, materials, industrials and consumer discretionary. In addition, the U.S. financial services sector is expected to record strong gains.

WHAT TO DO

Investors may consider a leveraged equity index trade to take advantage of seasonal and special events expected to unfold during the next three weeks. Possibilities include Horizons BetaPro S&P/ TSX 60 Bull Plus ETF (HXU/ TSX) and Horizons BetaPro S&P 500 Bull Plus ETF (HSU/TSX).

A word of caution: The trade is suitable only for investors who understand the higher risk/reward characteristics of these investments. Do your homework before investing and plan to liquidate the trade at or before the end of the period of seasonal strength.

Origianl web page is at
http://www.kelowna.com/2010/03/2 ... h-first-3-in-april/

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ranchgirl

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