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If This Is a Trend, It Hasn't Been Kind to the S&P

Chris Nichols

Stocks are off to a strong start for the final trading week of the first quarter, but if the market manages to advance between now and Friday, it will be doing so against its inclination of the past two decades.

Last week, the S&P 500 (^GSPC) had its worst week of the year, which raised the question as to whether the rally in stocks might be slowing. The index responded on Monday with a rally of nearly 1%. But if -- if -- the market adheres to its tendency of the last 20 years, this ultimately may be a difficult week for U.S. stocks.

For those of you who are directionally inclined, note that going back to 1992, the final week of the first quarter (measured by the last five trading sessions) has seen the S&P 500 fall in 14 of them, or 70% of the time. The average of the pullback has been 1.47%. For the six years the index climbed during the last week of the first quarter, the average gain was 0.61%. Of the years the S&P did rise in the last week of the first quarter, two of them were 2010 and 2011, with 2010 breaking a string of four consecutive losses.

Whether this qualifies as a trend, an aberration or something completely irrelevant probably depends on your perspective. What's happened in the past absolutely is not a guarantee of what will happen in the future, and one week is just one week. The longer term of course has paid off for the bulls, considering that in the last three years, the S&P has more than doubled. For the year to date, the index is up 12.2%, led by its financial and information technology sectors, each of which has gained more than 20%.

However, the short term matters too, to some investors more than others, because money is made in that time frame as well. Yes, every year is different, and 2012 isn't 1994. Comparisons from one period to another can be tricky, misleading or downright wrong. But of the numerous factors that go in to making bets on the next move being up, down or sideways for any security, some models do include the "trend" or the average of what is known to have happened. Still, it can't be stressed enough that this is a data point, not an investing philosophy.

What about the notion that mutual fund managers engage in "window-dressing" at a quarter's end, buying winning stocks to make their performances appear in the best possible light to investors? This isn't an argument for or against whether that's taking place, but 14 out of 20 declines does hint that buying by portfolio managers isn't a consistent influence that's taking the market artificially higher, at least as far as the final days of the last 20 fiscal first quarters are concerned.

There's no way to know for sure what's coming next, but we do have to try to make a little money either way. As noted previously, you've done very well believing in the S&P for the past 36 months, with the measure recently getting above 1,400 for the first time since 2008. A little slip here and there hasn't undone the long side momentum yet.

What's your take on the market? Are you worried about the short term? Optimistic on the long term? No idea what happens next? Weigh in below .