3 April Forecast*

◆ Stocks & Bonds

S&P 500 has shown a tendency to see price declines ahead of mid-month tax deadlines and then a month-end recovery. April is considered one of the best six months to be long, according to the Stock Trader's Almanac. The 30-year Treasury bond price has a tendency to make a seasonal low toward the end of the month.

◆ Energy

Crude oil has a tendency to continue rallying through April into mid-May as we are long crude trade from our seasonal best trade in February. This is still one of the best seven months to be long: from March through September. Natural gas prices tend to peak in mid-to-late April. Our best seasonal long trade from February signals an exit on or about April 24. Heating oil prices can remain firm through end of month, but on average demand declines as heating season ends. We exit our long heating oil trade in May, but aggressive traders should be looking to sell rallies against a monthly pivot or resistance level.

◆ Metals

Gold has a tendency to decline in April as tax-related selling pressures prices. Our best seasonal short trade for silver from February signals an exit on or about April 25. Copper tends to form a seasonal high toward the end of April and the first part of May.

◆ Grains

Soybeans in April still see upside, as planting concerns and demand for both meal and oil remain strong, U.S. inventories decline, and new supplies are not yet ready since South America's harvest is just beginning. Wheat is still under pressure, as harvest adds fresh inventories that outweigh demand. Corn has a tendency to remain strong, especially as April can lead to planting delays in cool, wet spring conditions. In addition, April tax season has passed, and farmers tend to start focusing on production rather than marketing, allowing inventories to build up on farm locations.

◆ Softs

Cocoa's best seasonal short trade from March signals an exit on or about April 17. Coffee prices are seasonally strong, as this is still just short of the Columbian and Brazilian harvest. It is also the time when the threat of frost damaging the South American crop is high. Sugar tends to remain weak during this timeframe due to inventory from sugar cane harvests in the U.S. Southeast and Brazil.

◆ Meats

Live cattle prices are in a seasonally weak period through mid-June, but we do see times where prices consolidate, especially if the month prior showed significant price declines. Ranchers tend to pay more attention to breeding in the spring rather than bringing livestock to market. Lean hog prices, on the other hand, continue to remain firm in April from a seasonal perspective. As corn prices increase feed costs, hog producers have shifted toward liquidating inventories and are preparing for breeding. Furthermore, competing pork producers from Canada have had more incentives to market their product with the increase in value of the Canadian dollar. This has magnified the seasonal peak, which comes in late May.

◆ Currencies

The euro has weakened in April in three of the past four years. The Swiss franc continues its seasonally flat period from March until the first part of August. The British pound best seasonal long trade from March signals an exit on or about April 23. The yen best seasonal short trade from March signals an exit on or about April 3.

April Seasonal Trading Strategy Calendar*

*Graphic representation of the Top Seasonal Sector Trades. L = Long Trade, S = Short Trade, → = Start of Trade.

To access an online version of this table, please visit www.wiley.com/go/seasonalsectortrades.

April Trade Reminders

4/3/2014:

End Short Yen(M) (Mar. 14)

4/9/2014:

End Short 30-Year Bond(M) (Feb. 5)

4/16/2014:

End Short Cocoa(N) (Mar. 14)

4/17/2014:

End Short Sugar(N) (Feb. 21)

4/23/2014:

End Long British Pound(M) (Mar. 21)

4/24/2014:

End Long Natural Gas(N) (Feb. 25)

4/25/2014:

End Short Silver(K) (Feb. 20)

Start Long 30-Year Bond(U)—69.4% Accuracy Since 1978—End Aug. 20

Start Long S&P 500(U)—65.6% Accuracy Since 1982—End Jun. 5

4/28/2014:

End Short 30-Year Bond(M) (Nov. 20, 2013)

To access an online version of this table, please visit www.wiley.com/go/seasonalsectortrades.

April Tax Time Takes a Bite Out Of Gold

Gold has a tendency to continue the seasonal decline that begins in January, leaving April vulnerable to price declines. April tends to see tax-related selling pressure on gold prices along with other financial markets, specifically the U.S. stock markets and more predominantly in the technology sector as represented by the NASDAQ 100. It seems that some investors raise capital to pay the IRS by liquidating portions of assets such as gold and stocks (see Stock Trader's Almanac 2014, p. 38).

Generally speaking, April is also a weak month from a demand perspective. The two forces of increased sales (supply) and no major demand cause the downside price pressure on gold during April. The monthly percent changes show a distinct price decline on gold.

The weekly chart in Figure 4 shows the price comparison of gold to a gold mining stock, Newmont Mining (NEM). NEM is a major producer of gold and other metals. This company manages properties in the United States, Australia, Peru, Indonesia, Ghana, Canada, Bolivia, New Zealand, and Mexico. The company was founded in 1916 and is based in Denver, Colorado. Not only are they diversified in various countries, but they also have a long history of being in business. This stock also trades well over an average of six million shares per day.

As you can see, the April selloff is predominant not only in the price of gold but also in the shares of this company. The bottom chart shows the average seasonality since 1975 of gold futures prices making declines in the month of April. Here again is another example of trading opportunities using seasonalities of commodities that have direct correlation to other markets, allowing you to trade that product under the seasonal aspects. Newmont Mining is one such example that mirrors the price movement of gold.

Figure 4 Gold Comex (Pit) Cont Liq @ NYMEX (Weekly bars)

www.TradeNavigator.com ©1999–2014

Bonds Can Go Up When Stocks Go Down

The vast majority of investors do not understand the nature of trading Treasury bond futures. There exists an inverse relationship between yield and price. When yield or interest rates go up, bond prices go down and vice versa. When investors feel threatened with a potential decline in the stock market, they allocate more money into bonds. This is often referred to as the “flight-to-safety” trade. Investors will also allocate more money to bonds when they believe the yield is more attractive than other, shorter-term investment options.

There is no doubt that both of those conditions were met in late 2008 through early 2009. However, even in that unprecedented time, 30-year bond price action did respect a seasonal supply/demand cycle. By going long, the September 30-year bond on or about April 25, and exiting the position on or about August 20, we discovered in the last 36 years a solid 69.4% success rate. This trade has a history of 25 wins with only 11 losses; the largest win was $20,250 in 2011, and the largest loss was $17,031 in 2013.

The 2009 stock rally off the bottom of the worst bear market since the Depression drove bonds lower. However, if one waited and used timing tools then we would have seen substantial gains. In 2013, this trade was a bust as the Federal Reserve began telegraphing a reduction in QE and stocks were having their best year in over a decade driving demand and prices for the 30-year bond lower.

Stock traders may consider the exchange-traded fund iShares Barclays 20+ Year Bond (TLT) as a replacement for this futures contract. Figure 5 shows the extremely close correlation of TLT to the U.S. Treasury bond.

Figure 5 T-Bonds 30Yr CBT (Comb) Cont Liq @ CBOT (Weekly bars)

www.TradeNavigator.com ©1999–2014

Using John's proprietary algorithm, Figure 6 delineates the price projections for the 30-year bond at the time of this writing through Q2 2014 based on recent trading activity and historical seasonal expectations. Three different scenarios are displayed so that you can better gauge the quality of this seasonality's trade setup and decide if and how to execute with respect to technical, fundamental, and market sentiment readings at the time.

Figure 6 T-Bonds 30Yr CBT (Elec) Cadj Liq @ CBOT

www.TradeNavigator.com ©1999–2014

Bullish: Resistance = 140.16 | Support = 129.16

Neutral:...