Basketball did not have a lock on March Madness last month. Markets were stuck in their own purgatory after the volatile month of February. Action may have seemed calmer than in February, but there was much more angst following sharp moves up in the VIX, which we can see in the monthly charts.
Let’s take a look at where we finished the month and quarter to understand what’s next.
What the monthly charts are telling us
Let’s take a look at the indices first. The SPX 500 was down about 1.3% in the first quarter, which marked the first down quarter since mid-2016 (that’s a heckuva run!). The Dow Industrials were down a bit more (2.4%). The R2K was down a tiny fraction and the Nasdaq actually closed higher.
After that swirling month of January, these results seem a bit disappointing, but does it translate into poor performance down the road?
For that answer, I look at the monthly charts. As you can see in the SPX 500 below, it had an “inside month”. That means there is a lower high and a higher low on the chart (aka, it was inside the prior month’s total range). An inside month signals less selling and buying demand during the month. As a result, the chart shows some coiling or consolidation.
As we headed into that last week of trading for March, I was concerned we might see a push down/past the February lows. If the index moved that low, it would have likely set the course of the monthly charts. It seems we have escaped a change in trend – for now.
Next month is typically the last of the “best six months of the year”. Traders will “sell in May and go away” – until November. The idea is to avoid excess volatility that arises during this time. Because this is a market myth, it’s worth pointing out that this strategy hasn’t worked well over past few years.
As we start a new month and quarter, the technical condition is largely oversold on several metrics. The price chart is also rather bearish. With two straight down months, the onus is on the bulls to turn things around. Perhaps the upcoming earnings season will be the catalyst to do just that.