Today's Comments (Short Term Outlook)                             Printer friendly

As goes January, so goes the year If the first trading day in 2008 is any indication of what we have in store for the rest of the year, would could be in some trouble.  There is some merit to that statement. There is a saying that goes, "As goes January, so goes the year."  Looking deeper, as goes the first week in January, so goes January, and hence, so goes the year.  One more step; as goes the first couple of days of January, so goes the first week, first month, the rest of the year.  Scary thought.  Of course there are exceptions, and like seasonality data, it can be a strong tendency, but it is not always accurate.  Speaking of seasonality, I really wanted to run for cover when I saw the selling yesterday based on the above tendencies and technical breakdown in the S&P, but I fought the urge knowing we could easy see an oversold rally today, particularly since it is THE best day of the year seasonality-wise, in terms of both percentage of times being positive (74%) and in average return (+0.50%).  An amazing one day gain of 5.0% on January 3, 2001 helped out that average return.  The interesting part is that the 5% gain was preceded by a nearly 3% loss on January 2nd of that year, so there is some precedence for a possible rebound today.                               Chart provided courtesy of www.sentimentrader.com Things rarely work out just the way you want them to, but I figured I'd play the odds.  I will look to sell any big rally as I am not sure I want to be fully invested for Friday's jobs report, but let's see what happens today first. The S&P 500 chart continues to deteriorate as the pennant formation did break out of the apex to the downside.  This tells me to proceed very cautiously and to look to sell any strength once again.  The first gap at 1460 did get filled.  The gap at 1430 is still open (point #1) and is probably a few days away from being filled.  The next support level is the long-term support line at point #2, currently near 1420.  There is a chance we could see a temporary move back into the apex (point #3) but the moving averages and declining resistance should keep a lid on the upside.                                     Chart provided courtesy of www.decisionpoint.com   A couple of months ago I listed a few major concerns that had me thinking that something unusual is going on.  I am talking about the record high oil prices, a record high in the price of gold, record lows in the U.S. dollar, a housing market that was spiraling downward, etc.  Well, we did have a little reprieve from those extremes a few weeks later, but they are all back to extreme levels once again.  Something is up and we should be cautious going forward.  I suspect we could see a lot more damage as, although we have have seen denial and probably the fear phase of the cycle of emotions,  we have not really seen any panic or capitulation yet.  There's a few more levels of emotion to go on the downside before we may put in a real bottom.    Our sentiment survey has been on the overly bearish side keeping it on a buy signal this week.  The AAII Investor Sentiment Survey has also been very bearish, which is a positive for stocks, but the Investor's Intelligence Advisor Survey moves a little more slowly than the other two and it is still overly bullish, which is usually bearish for stocks.  There is still a lopsided bulls (52%) to bears (25%) ratio of over 2.13 to 1 in that survey.  That happens to be a closely watched survey.  I like the faster moving ones myself, but that doesn't make them any more effective than this one.                                     Chart provided courtesy of www.decisionpoint.com   Our survey is being held today and I don't foresee any change in sentiment that would move the system to a sell signal; that is unless we see a 5% rally today as we had on January 3rd, 2001.  Otherwise, if 2008 is going to be a good year, it will have to fight the tendency of doing poorly when the first week in January does poorly. That's all for today.  See you back here tomorrow. Have questions?  Visit our message board for answers.  Would you like to be on our email alert list?  We will send you an email when there is a change to our asset allocation or market outlook.  Your email address will never be given out.  Read our privacy policy.  By signing up you agree to the TSP Talk Terms of Service.  More details below **. Are you bullish or bearish?  Join the Weekly Sentiment Survey. Like what you're reading?  Tell a Friend about us.