Google searches for the term “recession” are on the rise, but have decreased after peaking in early 2008. How might this be of benefit to the average investor?

Bill Tancer of Time Magazine recently wrote an article entitled “Googling the Recession” which compared a few terms related to “recession” that were interesting.

Tancer noted that most searchers likely were not aware of the common definition of a recession, which is officially defined as ‘two consecutive quarters of decline in gross domestic product,’ and noted that investors broadened their search beyond ‘recession’ and also searched frequently for “surviving a recession” and the like.

Tancer also notes a potential caveat to consider: “[If] the bulk of Internet searches during that period focused on what a recession is, one might assume that the spike in these kinds of searches was driven by media coverage of the topic. Searches focused on “recession” may not be the best indicator of an economy in trouble. If we compare searches that contain the term “cheap,” “discount” and “budget” during the same time period we might have a better understanding of consumer’s economic sentiment.”

Furthermore, “The real indicator might lie in aspirational searches, or those queries for things beyond most consumers reach. Searches for “Ferrari” are down 40% from the same week last year.”

I used Google Trends to see what the results were for the term “recession” and the results were revealing. I have attached the chart:

We see the most results (unfortunately, I was unable to find actual volume statistics) near January 22^nd, when the global markets plunged and the Fed jumped in to rescue the markets with a .75 rate cut. The news headline at “B” was “Stocks Dive on Fears of US Recession.” The headline at “A” was “Fed cuts rates to fend off Recession”.

The bottom line represents the news references (news articles) addressing the topic “recession,” which also spiked then but have been in decline.

I recommend playing around with this tool from Google and seeing what insights you might discover.

March was certainly the month for overnight gaps in the US Indexes! I list here the results of my monthly study of overnight gaps in the Dow Jones ETF (DIA – the “Diamonds”) to see the percentages that help determine the validity of the “Fade the Gap” strategy.

Let’s look at March’s simple statistics:

Of the 20 trading days in March, 17 (yes, seventeen!) of the days resulted in an overnight gap of greater than 10 Points ($0.10 on the DIA). This means that 85% of trading days in March showed some sort of overnight gap in the DIA. I’m not sure if that’s a record, but it is abnormally high. Gaps often frustrate many traders.

Of these 17 gaps, 12 of them ‘filled,’ meaning they traded exactly or beyond yesterday’s close at some point during the next trading day. Thus, 70% of all gaps filled for the month.

There were 8 overnight down gaps, and 9 overnight up gaps.

Of the 8 overnight down-gaps, 6 of these gaps filled, meaning 75% of down-gaps filled.

Of the 9 up-gaps, 6 gaps filled and 3 did not, meaning 67% of up-gaps filled.

Newer traders might expect bearish environments – which is what March gave us most of the days – to result in more negative gaps being unfilled because price was expected to head lower. As with most aspects of the market, what seems logical rarely occurs. In fact, what would have paid off handsomely in March would have been to BUY down-gaps and sell when price filled the gap (and selling at the end of the day if price failed to close the gap).

March actually gave the DIA the first ‘up’ month for 2008, but before you get too excited, price closed the month 0.25% higher than it ended in February. What it did give us is the most gaps in a month for 2008!

Please see my previous monthly statistics for more information:

January Gap Fade Statistics
February Gap Fade Statistics

So far, 45 of 61 trading days (73%) for 2008 have resulted in some sort of overnight gap .

Of these gaps, 28 of the 45 gaps have filled, meaning 62% of all gaps for 2008 have filled intraday.

What’s in store for April?!

Citigroup (C) is showing initial strength on the daily chart and may be ready to try for a reversal.

Price is struggling to break above the 50 period moving average, which has served in the past as key resistance. Price remains in a strongly confirmed downtrend, but a recent increase in momentum may be a signal that this downtrodden stock may be awakening after a major decline.

Before getting super bullish, I would recommend you wait for a potential strong close above the flattening 50 period moving average.

Also, the red ‘trend’ line on the bottom panel indicator has now crossed the zero line, signaling an aggressive buy signal.

Let’s see how far this stock has fallen:

From a mid-2007 high above $53, the stock recently tested levels beneath $20, falling more than 50%.

A momentum divergence has formed on the weekly chart, which could precede a potential reversal (or at least consolidation phase where the stock will build a base for a reversal).

And how does Citigroup compare with other stocks in its industry?

Over the last 200 days (since mid-June 2007 before the ‘plunge’), Citigroup’s peers have performed as such:

JP Morgan Chase (JPM): -5.63%
Wells Fargo (WFC): -10.8%
Bank of America (BAC): -17.63%
Wachovia (WB): -46.4%

Actually, Wachovia’s chart and pricing looks very similar to Citigroup’s.

Keep an eye on some of these key stocks, as it’s been said Financial Stocks lead the market up and down.

In case you don’t follow global markets, I thought I’d show you the amazing, euphoric rise of th Shanghai ($SSEC) Stock Composite Index (China) and its precipitous fall and compare that to the US NASDAQ Composite blow-off of 2000.

The monthly chart shows a wild ride for investors, including the stratospheric rise from 2,000 to 6,000 in less than a year.

The precipitous fall from 6,000 to near 3,000 has taken less than a year to occur as well.

What did the NASDAQ look like?

It looks very similar, doesn’t it? Bubbles still form today in both stocks and global indexes. In 2007, we heard about how China was becoming a super-power and how their population was growing and their industry was booming. All that is true, but that does not translate instantly into overnight wealth in their stock market. Traders can bid prices up to euphoric emotional levels and eventually prices will revert back either to logical levels, or beneath logical levels, swinging the pendulum to the opposite extreme.

Be aware that overseas markets can affect the US Stock Market, and especially certain sectors of our market. Before concluding, let’s peek at China’s weekly chart:

The index even had the little ‘throwback’ or ‘dead cat bounce’ or bear flag that the NASDAQ had in 2000 before plunging starkly to form its bottom in late 2002.

I would guess the Chinese stock market has a little further to go to the downside before entering a period of consolidation in order to build a base for the next more reasonable price appreciation.

With the exception of Tuesday’s “April Fool’s” 3% stock market move, the rest of the week experienced tame trading. Let’s take a quick look at some of the index charts to see where last week’s action left us:

For the S&P 500, price crested and closed 4 days in a row above the key 20 and 50 period moving average. It’s possible these areas will now shift from resistance into initial support, adding a little fuel to the bullish fire.

On the other hand, volume is declining on the recent market rally, adding doubts – however – to its staying power. These conflicting signals are confusing to traders.

Let’s not forget that the market is currently in a ‘trading range’ or flat trend between 1,400 and 1,260. Until either of these levels are taken out, we should perhaps expect a little more consolidation as traders take in new information and ‘bet’ accordingly.

Let’s peek at the NASDAQ chart:

The chart is showing similar signs of life which are encouraging to the bulls. Momentum (via the oscillator) is trending up and price is now closing above the key 20 and 50 period moving averages as well.

I drew a mini bull-flag on the chart which has now completed its target. Price has formed an indecision “doji” candle on this timeframe, which could precede a short-term reversal (just to test prices a little lower).

The bulls currently have a little bit more going for them than last week, and short-sellers must be aware of that.

The tides may indeed be turning but always look to the risk, no matter what position you decide to take.