April 2020 just closed as The Best Month in Stock Market in 82 years.
Both the Dow Jones and S&P recorded historical gains after the craziest month of March.
Which sectors are leading the rally ? Which ones provide opportunities for short term and long term traders ?
These are the questions we set to answer in the below discussion.
The Best Month is Stock Market: What Month is Historically the worst Month For Stocks ?
The Coronavirus (COVID-19) altered our lifestyles across the globe in Mid March went world economies came to a complete halt.
Consequently, the resulting impact was dismal return in stocks market and fear of a great depression.
September has been the worst month for stocks based on past history.
So what transpired in February and March was unprecedented even for this time of increased volatility.
S&P depicted in the chart above captures the 30% drop in stock market between the highs of February and the lows of March 2020.
The Best Month is Stock Market: What Stocks Will Rise in 2020 ?
After the brutal March, came April along with increased volatility.
Below is the view of the performance of all the S&P sectors in April (middle view) vs. 3 month.
We even threw in the last week of April so that we can get a sense of the most recent momentum.
Conglomerates advanced the most in April with 18% gain.
They are closely followed by Services, Basic Materials, Healthcare and Technology all around 15%.
In the Services sector, think of Airlines with the likes of AAL, DAL, UAL or JBLU.
But also included are giants like Amazon (Ticker:AMZN), Walmart (Ticker:WMT) or Alibaba (Ticker: BABA).
As impressive as the gains in April may look, some industries remain depressed and challenged.
From a trader or investor point of view, these may represent opportunities for the rest of 2020.
Which leads us to the next section on where to find such gems in the market .
What is Your Ticket to Exposure During Bear Market Recovery
The rally in April 2020 was not straight forward.
It came with increased volatility.
Remember, the plunge in March was accelerated with the Crash of oil prices.
Therefore, the Basic Materials sector (in which most oil companies are categorized) experienced the highest volatility.
How High ?
Here is a view of the 1-month Performance (Horizontal Axis) vs Monthly Volatility.
The colors are per sector while the bubble size represents the Market Capitalization of the given stock.
Oil companies within the Basic Materials tend to fall in the top right quadrant of high performance (greater than 40% ) and high volatility (above 8%).
There we find the likes of Halliburton, Marathon Petroleum, Devon Energy or Valero Energy Corporation.
Imagine you bought the dip in March on one of these company and was able to score 40%, 60% or more the very next month in April.
Possible you are wondering how can these stocks gain so much in one month and still be reasonable investment or trading opportunities ?
The Best Month is Stock Market: Leaders and Laggards
If April is the Best Month in stock Market for over 82 years, are there still great stocks to buy ?
Rest assured, you have not missed the rally at all.
A great deal of companies still remain cheap in regard to their potential.
The next chart from Finviz is comparing this April 2020 Best Month Performance to the 3 month Performance.
On the right side, you will find the leaders in AMD, NVDA, Chipotle and Target to show that it is not always about the tech companies.
If we focus our attention on the left side of the graph, it reveals many stocks with very flattering return in April yet still have negative returns for the year !
This category features some of the Basic Materials in blue we discussed in the previous paragraph.
How about the laggards ?
The bottom left quadrant is full of these: WBA, GE, MOS if you have an aversion for Airlines we mentioned earlier.
Investing in these stocks are this time is a personal decision based on each individual timeline.
The beauty with Option trading is that up or down, the volatility is a great way to generate profits.
In particular case, we have been trading Options during this time through an ETF that encompasses some of these laggards.
Here is the video of some of the profits we were able to generate.
The recent rally during the Best April Month in stock Market may seem overdone.
Yet a great deal of sectors have not even recovered half of the Lost market Capitalization.
This represents a great opportunity for investors and traders going into the Second half of the year.
The usual Saying ” Sell In May and Go Away” may not be at all applicable.
TBP | Becoming A Successful Stocks and Options Trader