TSP Talk Blog

Stocks rallied to start the New Year so the 2017 momentum has rolled over into 2018. The Dow gained 105-points or 0.42%, and while we've seen some recent years start with losses, this one clearly broke that trend, and it could be a good sign for the new year, but we have to get through the week before the January barometer kicks in.

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A couple of quick administrative notes before we get started:

- The 2018 Guess the Dow Contest is open with a deadline of COB this Friday.

- The Final 2017 AutoTracker Standings have been posted.

- The Final AutoTracker Monthly Standings for December (Monthly winners will be posted here).

- RevShark is offering 33% off his TSP Timing annual subscriptions this week. Ends COB Friday.


There is a theory that, how goes January, so goes the year. But it goes even further in that how goes the first week of January, so goes January, and thus so goes the year, so that's why I say let's see how the week plays out. Also, this pattern has not been as consistent in recent years although 2017 did start well.

Another look at the 30-year seasonal chart for January shows that the January 2nd does have a good record, but the 3rd and 4th do not since they have actually been down slightly more often than up. The month on whole is a good one historically, but it can be choppy with earnings season kicking in mid-month.


Chart provided courtesy of www.sentimentrader.com


The old "January Effect" actually represented a tendency for stocks that did well in the prior year to underperform in January while stocks that did poorly outperformed, and also small caps had a tendency to do very well, but that has morphed more into more of a December Effect in more recent years.

The 22 point gain in the S&P 500 puts a positive spin on the official Santa Claus rally tendency that we've been talking about. It now stands at 2696 and the theory is that a close today (the 2nd trading day of the year) below the December 21st close of 2685 would be a negative for stocks in 2018, but now right now it's about 0.4% above that level.

We get the December jobs report this Friday and consensus estimates are looking for a gain of 188,000 jobs, and an unemployment rate of 4.0%.

The SPY (S&P 500 / C-fund) gained back all of the losses from last Friday, plus a little more. It closed at a new high, which is unusual for the start of a new year, and prior occurrences did see immediate pullbacks, so we'll see if this one stocks.




The small caps / S-fund also made a new high, and while the chart looks ripe for a breakout, there's always a chance of a test of the bottom of the larger flag (blue) before that happens. Be careful. A false breakout is possible here with investor sentiment so high.




The Dow Transportation Index blasted to new highs and this chart is getting quite a bit stretched. The momentum is on the bulls' side and the long-term outlook for this chart looks good, but the short-term could prove tentative having rallied 1400 points in 6-weeks.




The EAFE Index (I-fund) is no different - it's near new highs, in a rising channel and overbought. It looks good, especially if the dollar keeps falling, but be careful in the short-term.




The Volatility Index ran up to the 200-day EMA last Friday but that was short-lived and it moved back below 10.0, which was the theme of 2017.




The AGG (bonds / F-fund) was down but it did close well off the lows of the day while continuing to trade within its large rising channel.




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Thanks for reading. We'll see you back here tomorrow.

Tom Crowley
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