March came in like a lion with the Dow starting the month by soaring to an all-time high near 21,150 then went out like a lamb, losing nearly 1,000 points over the course of the month. Overall, March ended up being a choppy month for stock markets. The FTSE and other US indices showed signs of topping while markets in Germany, Japan, Hong Kong and Australia showed resilience.
The US Dollar turned downward in March, as traders trimmed back their expectations for the number of US interest rate increases this year from four to three on a combination of Fed projections, FOMC member comments and a rockier road to political reform in the US than has been expected with the first push on health care reform failing. This decline enabled a number of major currencies to rebound, particularly defensive havens like gold and the Japanese Yen.
March was an active but mixed month for trading in the British Pound and the Euro amid a series of ups and downs that culminated in the triggering of Article 50 and the start of the formal Brexit process. Sterling remained volatile through the month trading between $1.2350 and $1.2600 but still appears to be forming a technical bottom having formed the right shoulder of a big head and shoulders base during March.
My results for March were mixed. USDJPY continued to decline has I had expected and did test the 110.00 round number by the end of the month as I had suggested. The Hang Seng declined through the first half of the month as I had expected trading from near 24,000 to a low near 23,400 but then exploded upward for a thousand point rally in the second half. Platinum did not build on its February gains as I had expected. Instead it sold off along with gold in early March but even worse, did not participate in gold’s late March rally, leaving the door open for a potential catch up bounce in April.
April has the potential to be a big month for trading in North American markets and could potentially mark a big turning point.
Historically, April has been one of the strongest months of the year for stock markets, but also often coincides with a seasonal peak, hence the old market adage Sell in May and go away. So far technical signs suggest markets may have peaked in early March. This month, we could get a last hurrah retest of the highs, a sideways consolidation or a deepening correction.
With President Trump shifting his focus to tax reform, trade and possibly infrastructure, this month we should get an idea of whether the health reform failure was a temporary setback or a sign of bigger challenges to come.
US politics may particularly impact the market near the end of April. On April 28th the current resolution on the debt ceiling expires. Congress has been working on a deal to extend current spending to the end of September but if talks fail, a partial government shutdown in late April or May can’t be ruled out. Debt ceiling talks could impact the timing of Fed rate hikes and USD throughout the year until a lasting deal is reached.
First quarter earnings season starts in April. Stocks have run up dramatically on anticipation that President Trump would be good for corporate earnings. This month the rubber starts to hit the road. Results from Banks, Industrials, and infrastructure stocks that had benefitted from Trump trading may attract particular scrutiny from traders trying to figure out if the rally was overdone.
Trade is likely to have an impact on Canada trading, with President Trump expected to start pushing for the renegotiation of NAFTA this month. The Bank of Canada has a meeting April 12th where it may reiterate its readiness to cut interest rates if US trade policy changes have a negative impact on the Canadian economy.
Overseas developments may also impact trading include the first round of French elections being held on April 23rd. If Marine Le Pen comes out in the lead, it could rattle sentiment toward Europe and spark a defensive flight, but if she comes out of Round One trailing, it could spark renewed confidence in Europe and ease political risk concerns.
An EU summit to set Brexit negotiation strategies rumoured for later in the month (maybe the 28th) may could also move the markets. April is also the month of the EU’s planned one and done taper to its QE program which could impact Euro trading.
With so many developments possible near the end of the month, it’s possible that trading in the two halves of April could be very different, just as they were for many markets in March. The Good Friday/Easter weekend is April 12-15 which could end up becoming a break point for market sentiment.
Three interesting markets for April 2017
1) Index FTSE 100 Current Price 7,365 1 month forecast 7,200
Since the Brexit vote back in June of 2016, the FTSE 100 has been trending in the opposite direction of the British Pound. Initially, UK stocks soared as GBP collapsed but with Sterling bouncing back, the UK index looks vulnerable, particularly with a head and shoulders top forming. In the coming month, the index could retest 7,200 which is about halfway between the 23% (7,260) and 38% (7,150) retracements of the December to March uptrend.
2) Commodity Copper Current Price $2.70 1 month forecast $2.82
Copper is starting to really break out as March comes to an end. Both the metal price and the RSI have broken out of downtrends, signalling renewed accumulation. The price has started to rally up off of $2.64 with a retest of the February high near $2.82 possible. Copper can benefit from signs of an accelerating global economy.
3) Currency EURGBP Current Price 0.8595 1 month forecast $0.8320
Since the UK triggered article 50 the Euro has been declining relative to the pound. The 50-day average for EURGBP is falling under the 200-day, a Death Cross that confirms momentum turning in favour of Sterling. This suggests that despite all of the rhetoric coming out of the continent, traders see Brexit as a net positive for the UK and a net negative for the EU. In the coming weeks, this pair could test its February lo near 0.8400 or even its December low near 0.8300.
Commodity Market Outlook
March was a very mixed month for commodities with 11 of 20 markets posting declines. The top gainer was natural gas which rallied 13.3%. On the other hand, WTI Crude oil, oats and Sugar all plunged more than 10%.
The performance of my March selections was mixed. Gasoline had an excellent month, posting a 9% gain, clearing $1.60 and approaching my $1.68 forecast. Robusta coffee, however, bounced in early March and then spent the month trading sideways and finished the month with a small gain rather than the big decline I had anticipated. It still appears to be forming a big head and shoulders top technically.
Heading into April, gold and silver have bounced back but platinum has not, leaving the door opening the door for potential catch up rallies.
Historically April has been a positive month seasonally for the metals and energy groups and most of the grains except for Oats. Gasoline, WTI crude oil, wheat and Arabica coffee have been particularly strong performers during the month. April has been a poor month historically for soft commodities overall with sugar and OJ especially poor performers. Sugar was hit hard in March and looks oversold but also completed a big head and shoulders top.
Best Commodity Copper Current price $2.66 one-month forecast $2.82
Copper spent most of February and March in correction mode but this appears to be ending and its underlying uptrend resuming. The metal price and its RSI indicator have both broken out of downtrend with the RSI also regaining 50 all signalling the start of an upturn that could potentially challenge $2.72 or even retest its February high near $2.82. Copper is sensitive to global economic conditions, particularly China and could benefit if the global economy continues to show signs of improvement.
Worst Commodity Oats Current Price 2,072 one-month forecast 1,934
A late 2016 rally has petered out in early 2017. In March, Oats completed a triple top and has since fallen off a cliff, breaking $2.36 support to signal a downturn. RSI under 50 and falling confirms downward momentum increasing. Oats have historically fallen in April and this month, could decline to retest its 200-day average near $2.10 which would coincide with a common 50% retracement of its previous uptrend.