It’s spring and time to take profits

NEW YORK (MarketWatch) � Stocks hit new post-crisis highs on Monday, as the Dow Jones Industrial Average topped 13,264 and the Standard & Poor�s 500 index closed above 1420.

Both have sold off a bit since then, as new worries have cropped up in the market � or should we say old worries in new bottles? Europe (again), the Federal Reserve not easing monetary policy enough, and what have you.

No one can predict the market�s direction over weeks or even a couple of months. But I think we�ll see a long-overdue correction as we move deeper into spring.

The weeks ahead may be a good time to take some profits and move money into more defensive areas, though I certainly wouldn�t dump equities entirely.

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Sam Stovall, chief equity strategist at S&P Capital IQ, says April is historically not the cruelest month � actually it�s one of the best months of the year for stocks, on average.

The Stock Trader�s Almanac ranks April second only to December in the performance of the S&P 500 SPX �, with a 1.5% average gain since 1950. It�s the very best month for the Dow DJIA �, which averaged 2% gains over that period.

And it�s especially strong, Stovall adds, when it follows two consecutive quarters of the kind we�ve just had.

�[In] the ten times we had first-quarter advances of 5% or more that also followed fourth-quarter advances of 5% or more, the momentum continued into April, with the S&P up 2.5% and the average recording an advance 80% of the time,� he told me in an interview.

That�s particularly true, he said, when we�ve had a rebound from either a severe correction or a mild bear market. (The S&P lost 19% from its April 29, 2011 peak to its October 3rd trough, within Stovall�s definition.)

This market has tracked those patterns particularly well, he told me: Historically the S&P gains 14% in the first three months of a recovery from a sharp correction and 24% over the first six months. This time around, the S&P advanced 17% over the first three months and 29% in the first six months.

The big events for the market in April, besides the usual economic data, are first-quarter earnings, which kick off when Alcoa Inc. AA � reports next week. The companies in the S&P have beaten expectations every quarter since they hit their lows in the third quarter of 2009.

�The bar is set excessively low� for this quarter�s earnings reports, Stovall said: Analysts are projecting only 1% earnings growth in the first quarter and only 2% in the second. He thinks they will top those estimates.

But clearly investors will pay just as much attention to the companies� guidance as they will to the actual earnings numbers. If that�s as murky as it was last quarter, these companies may no longer get the benefit of the doubt. Read Dave Callaway�s take on earnings season.

Meanwhile, the pot is stirring in Europe again, and the object of the hand-wringing this time is Spain. An auction of Spanish ten-year bonds went poorly this week, as fewer bonds were sold at higher interest rates than expected. That immediately caused the euro to drop and European stocks to plunge Wednesday. The US and Asia followed suit.

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