With just one full trading day remaining in March (U.S. markets are closed Friday), now is the ideal time to take a look at how April factors into the market's seasonal trends.
Importantly, the fourth month of the year marks the start of the second quarter, which can trigger some window-dressing by fund managers early in the month.
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Perhaps even more importantly, April is the last month in the best six-month cycle in which to be long stocks. When April turns to May, the conversation turns to how well "sell in May and go away" will work this year. For the moment, stay focused on April.
"This April 1st is a busy day full of seasonal influences. As the first trading day of April and the second quarter, it has enjoyed exceptional strength over the past 18 years, advancing 15 times with an average gain of 0.6% in all 18 years for S&P 50. Declines occurred in 2001, 2002 and 2005. However, in 2013, April 1st is also the day after Easter which has been the S&P 500's worst post-holiday trading session," according to the must-read Stock Trader's Almanac in data posted on Josh Brown's The Reformed Broker.
With that in mind, here are some of the ETFs traders and investors should have a look at next month.
First Trust Dow Jones Internet Index Fund (NYSE:FDN) As the Stock Trader's Almanac notes, April marks the start of strong multi-month run for Internet stocks. Specifically, it is mid-April through early July. FDN debuted in June 2006, so there are six past Aprils to evaluate with this ETF. The fund is up higher in four of them, and the two April declines seen in 2010 and 2012 were modest.
Interestingly, FDN did not really obey the Internet sector's seasonality last year because selling the ETF in July would have been a mistake. FDN was trading around $35 in mid-July, but closed the year above $40 and is currently flirting with $43.
Google (NASDAQ:GOOG), Amazon (NASDAQ:AMZN) and eBay (NYSE:EBAY) combine for over 23 percent of FDN's weight and will be the near-term drivers of the ETF's performance.
SPDR Dow Jones Industrial Average ETF (NYSE:DIA) The Dow's April track record over the past 42 years shows decent odds for the bulls with 25 up Aprils and 17 down performances, though one of those losing Aprils was 2012. Last year, from the start of the month through April 30, DIA lost a matter of pennies.
The common criticism of the Dow, something that potential DIA investors should be aware of, is that is a price-index meaning IBM (NYSE:IBM) commands the largest weight in the Dow because it has the highest price tag. On the hand, investors should consider what sectors are driving the broader market higher this year.
The Consumer Staples Select SPDR (NYSE:XLP), the Health Care Select Sector SPDR (NYSE:XLV) and the Energy Select Sector SPDR (NYSE:XLE) have been among the best-performing sector ETFs this year. Six of DIA's top-20 holdings are found in those three sector ETFs. Overall, energy, health care and staples combine for nearly a third of the Dow's weight and if those sectors keep charging higher in April, DIA should as well.
ProShares UltraShort Oil & Gas (NYSE:DUG) Including the ProShares UltraShort Oil & Gas on this list might seem like a contradiction after extoling the virtues of the energy sector, but here is why DUG is worth a look in April. The energy sector has its own seasonal trends, including a strong four-month run. April is the third month in the strong time frame for energy stocks.
What is interesting as it pertains to DUG is that May is the worst of the best four months for energy stocks. Along those lines, consider DUG a "wait and see" play as April moves along. If ETFs such as XLE start to pullback, DUG could merit at small position.
Traders should note, however, DUG does not track the same index as XLE. Rather, DUG is designed to deliver two times the daily inverse performance of the index tracked by the iShares Dow Jones U.S. Energy Sector Index Fund (NYSE:IYE). That ETF allocates 38 percent of its weight to Exxon Mobil (NYSE:XOM) and Chevron (NYSE:CVX).
So if the Dow starts to fall, Exxon and Chevron will probably have a hand in that and that scenario would increase the allure of DUG as a short-term trade.
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