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Profit
taking and dip buying
Stocks opened higher yesterday, but sold off into the early afternoon before
we saw the dip buyers jump in and move the indices back toward the highs of
the day.
The Dow closed up 20-points on the day, but most of the major indices closed in negative
territory, particularly the small caps.
For the
TSP, the C-fund lost 0.13%, the S-fund
fell 1.05%, the I-fund gained 0.53%, and the F-fund (bonds)
added 0.02%.
The Dow actually closed at a new 2-year high. The S&P 500 could not make
a higher high, but the index seems to still be climbing that tight ascending
trading channel.
The index is now 117-points above its 200-day EMA, close to a trouble area
after pulling back from a 126-point spread on Monday.
Chart provided courtesy of
www.decisionpoint.com, analysis by TSP
Talk
The MACD
is showing another negative divergence as the indicator has been moving
lower for the last several weeks, while the S&P has moved higher. This
could be a warning sign for the short-term.
According to SentimeTrader.com:
"The S&P 500 SPDR (SPY) started a new year with a gain of +1% or more 6 times
since its inception in the mid-1990s. Over the next three weeks, its
returns were -1.4%, -2.0%,
-2.6%, -0.1%,
-10.6% and -3.1%
(the years were 1996, 2002, 2003, 2006, 2009 and 2010).
"Using the S&P
500 cash index, there were a total of 15 such years since 1929. The next
three weeks sported an average return of -1.1% with 33% of them being
positive."
This goes along
with our false breakout scenario the we talked about on
Monday.
The market leaders, Transportation Index and Nasdaq, both pulled back from
Monday's rally, and could be displaying the start of that false
breakout. The market would have to move higher, and ultimately make a
new high, before we can call off the "false" part.
Chart provided courtesy of
www.decisionpoint.com, analysis by TSP
Talk
The smart money of the OEX put/call ratio is back in overly bearish
territory. As we know, the smart money is not a contrarian indicator
like the dumb money ratios, so this extreme reading is pretty concerning.
Chart provided courtesy of
www.decisionpoint.com, analysis by TSP
Talk
The Smart Money / Dumb Money Confidence Indicator is off of its worst levels
of the dumb money being overly bullish and the smart money being very
bearish, but the dumb money at 75 and the spread between the two remain at
levels that have preceded pullbacks in the past.
Chart provided courtesy of www.sentimentrader.com
All in all we have good strong
market and I think you may want to err on the side of being too bullish than
bearish, but for those who are nimble, the ducks are lining up for some kind
of a pullback.
You've probably heard the old Wall Street axiom, "As goes January, so goes the
year"; Meaning, if January is good, the year will be good. If
January does poorly, the market's returns underperform during the rest of
the year.
It goes even further. As the first week (1st 5 trading days) of
January goes, so goes January, thus so goes the year.
This first chart shows the data for every week since since 1928, and what
happens during the following 51-weeks that follow. This isn't just
January. It is any week, at any time during the year, and what happens
during the
next 51-weeks that follow.
So, we see that 55.64% of all of the trading weeks since 1928 were positive,
while 43.74% were negative. The 51-week return following an up week is
positive 67.37% of the time, and negative 32.63% of the time.
The 51-week return
following a down week is positive 63.66% of the time, and negative 36.29% of the
time. Nothing earth shattering, but there is a more positive bias
after a good week.
Now let's take a look at the returns of just the first week of the year and
the 51-weeks that follow: After a positive week one in January, the
following 51-week return is positive nearly 70% of the time. After a
negative first week in January, the following 51-week return is positive
just 44.44% of the time.
source: http://www.ritholtz.com
So there is some truth to the axiom, and
that seems to make what happens in the month of January, and the first week
in January, a little more important than other months / weeks of the year.
Thanks for reading! We'll see you back here tomorrow!
Tom Crowley
Click here to discuss today's Market Commentary
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