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Hey, guess what: It’s almost time for this truly ridiculous quarter to end. I mean, what was that all about? We started with a 10% decline into mid-February, almost out of the blue, and then a huge gust of wind came up out of the oil patch and sent crude prices soaring — and stocks went along for the ride, gaining a bit more than 10% since mid-February.
Holy cow. You gotta wonder whether that has ever happened before. And the answer is: Well, yeah, I mean, over the past 125 years almost everything has happened at least once. In fact, it’s not that uncommon.
Analysts at Bespoke Investment Group rifled their database to find prior years in which the S&P 500 saw 10% moves up and down in the span of just the first quarter. The chart above lists all of those years, and then adds the index’s performance for the remainder of the year. To make the list, the S&P 500 had to have dropped 10%+ from a closing high and rallied 10%+ from a closing low at some point in the first quarter.
As you can see, the S&P 500 has seen some big gains following similar first quarters of the year. On average, the index has seen a gain of 28.3% for the remainder of the year, with positive returns 75% of the time!
In the table, Bespoke has also shaded years in which the S&P 500’s first 10% move was to the downside (like 2016) and then plotted them in the chart above. As it turns out, the results are even better: The S&P 500 averaged a rest-of-year gain of 38.7%, with positive returns in each year. (In 1939, the S&P 500 finished the year in the red but up from its closing level on March 31.)
I find it quite amazing and energizing that two of the years on this list came at the conclusion of bear markets — 2003 and 2009. It would be awesome if this year defied current expectations and roared higher, potentially in sync with a moderately improving economy and a Fed on the sidelines.
In short, if these data proves prescient, then the move up out of the February lows could serve as a solid foundation for very good performance the rest of the year. With that vantage point, my Trader’s Advantage recommendations have all been to the buy side recently, including Rayonier Advanced Materials (RYAM).
Rayonier is a $400 million maker of cellulose specialty products around the world. The natural polymers are used as raw materials to manufacture a range of consumer-oriented products, such as cigarette filters, liquid crystal displays, thickeners for food products, pharmaceuticals, cosmetics, high-tenacity rayon yarn for tires and industrial hoses, food casings, paints and lacquers.
Shares were beaten down as low as $6 earlier this year but are on the mend in sync with the broad commodities rally. While Rayonier sank 2.3% after tagging the top of its consolidation early Monday, that temporary lull means traders can buy at a discount. Just look back at Rayonier’s bounce off the 21-day average on Thursday, which shows that professionals are buying on dips.
I recommend buying Rayonier at current levels.
Set up to sell half of the Rayonier position at my initial target $9.85 limit, good till canceled. Set a stop loss at $8.75, good after 10:30 a.m. ET only.
Jon Markman writes a daily trading newsletter, Trader’s Advantage, and CounterPoint Options, a service geared towards helping individual traders make steady, consistent profits with the VIX. Follow him on Twitter for his latest take on markets and innovation.