While stocks finished mixed on Thursday to put an end to March and the first quarter of the year, it capped the greatest stock market comeback in history. The Dow Jones Industrial Average’s 11.3% drawdown into the January low — with a retest in February — is the largest on record for a quarter that finished in the green. (The next closest drawdown was during the 1930s.)
Impressive stuff. But where do we go from here as stocks now struggle just below Dow 18,000 — a level that has limited upward progress since late 2014? As the calendar flips to April and the second quarter starts, we will see if the bears will emerge from a multimonth hibernation to reverse what’s been a historic, uninterrupted seven-week uptrend.
A stronger economy, lower unemployment and higher inflation might be good for the economy, but it won’t be for a stock market addicted to cheap money stimulus as the Federal Reserve is forced to raise rates again — possible as soon as April but more likely to be in June. That will worsen the weak oil/strong dollar dynamic that is weighing so badly on corporate earnings.
For now, I continue to recommend conservative investors move to cash while the more aggressive focus on short-side opportunities such as the following three charts: Deere & Company (NYSE:DE), Wells Fargo & Co (NYSE:WFC) and Walt Disney Co (NYSE:DIS).
Deere & Company (DE)
DE suffered a big breakdown on Thursday below its 50-day moving average for the first time since early February. This caps what is nearly a monthlong reversal, returning shares to the consolidation range that has been in place since last August.
The catalyst for the reversal was a weak USDA grains report that showed a 20% increase in wheat stockpiles and a 15% increase in soybean stockpiles.
Wells Fargo & Co (WFC)
WFC, like many big bank stocks, has been under pressure in recent weeks as long-term interest rates have started to decline again — pressure net interest margins. As a result, shares have dropped back below their 50-day moving average to end the two-month uptrend that started on Feb. 11. This continues a downtrend that’s been in place since last summer.
It didn’t help that UBS analysts recently initiated coverage on the stock with a sell rating as they believe key strengths have already been largely priced in.
Walt Disney Co (DIS)
DIS shares have stalled at resistance near the $100 level, with a big breakout attempt on Thursday reversed into the closing bell. Shares have bounced back a little from the mid-February lows but remain well off of the double-top high near $120 amid lingering concerns about the company’s television business.
Watch for a test of support near the 50-day moving average, a violation of which could set up a drop back to $90.
Anthony Mirhaydari is founder of the Edge and Edge Pro investment advisory newsletters. Free two- and four-week trial offers have been extended to InvestorPlace readers.
