Archives for January 2017

Dow 20,000 on Hold for Now

On Friday the Dow Jones Industrials failed to touch the vaunted 20,000 level, missing by less than a single point. It’s been interesting to watch the media fall over themselves, cheering, pushing and encouraging the Dow to touch 20,000. Frankly, it’s kind of embarrassing. What’s worse has been the pundits who actually believe Dow 20,000 actually means anything. It’s just a number although I guess eclipsing milestone levels does add to the euphoria. For me, it’s been a target I started forecasting in 2010 before the bull market ended.

Anyway, as the Dow failed to hit 20K and fell back during the afternoon, the underpinnings of the stock market were less than impressive. The number of stocks hitting all-time highs receded. The NYSE Advance/Decline Line was actually negative on Friday, showing fewer stocks participating. The Russell 2000 small cap index saw its second straight down day. Market sentiment based on surveys was frothy. This is not the healthiest short-term landscape for a blast higher right here.

Whether stocks hit 20,000 this week or fail, it looks like the market is a bit tired and needs a rest or pullback for a few weeks.

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Santa Came a Callin’ But Who Cares…

The Santa Claus Rally (SCR) has officially ended with the bulls winning by almost 1/2%. That’s supposed to portend positive things for the year ahead. However, as with most Wall Street adages and assumptions, it just stand up to scrutiny when doing the research. First, let’s remember that during most long-term periods, stocks rise at least 2 out of every 3 years, so a permanent kind of tailwind to support the bulls.

As I started to update the stats on the SCR, my friend, Tom McClellan (of Summation Index, Oscillator and newsletter fame), emailed me his findings which I will quote as he rarely makes mistakes. A positive SCR foretells an up year for stocks 68% of the time since 1928. Excluding the Great Depression decade, that figure rises to 74% versus 72% for any random year. Since 1980, an up SCR leads to higher year 80% of the time versus 75% for any random year since 1980.

On the flip side, for those curious, since 1928, the odds of any year being down are 34%, 28% since 1941 and 25% since 1980. A negative SCR has correctly predicted the full year being down, 42% since 1928, 33% since 1941 and 36% since 1980. While the negative SCR correctly called for 2008 to be down, it failed to forecast 2000, 2001 and 2002 being lower.

What seems so powerful on the surface is just barely better than random when looking into the details on the upside and downright poor in predicting a negative year.

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Santa Came a Callin’ & Dow 20K Up Next

While the point totals so far have been more impressive on Tuesday, the market action on Wednesday is more constructive and healthier. We had a quieter opening without emotion. The Russell 2000 and S& P 400 are leading, which runs counter to the trend I pointed out yesterday. The NYSE Advance/Decline Line is much stronger today. Commodities are bouncing back. I was hard pressed to find any sector that behaved well on Tuesday, but the vast majority are today. I said I wasn’t going to discuss leadership and I didn’t!

With the Santa Claus Rally period ending shortly, it looks like Santa definitely did call to Broad & Wall, fending off bears as the adage goes, although I don’t think that really holds water anymore. We have the first five days of January system ending next Monday and an up period supposedly bodes well for the rest of January which would bode well for the entire year. However, I will never believe that people make portfolio decisions based on five random days of the year.

So far in 2017, the bulls have been resilient. I am impressed. Dow 20,000 looks like a hit before the weekend. I still think there is a deeper pullback this month, but it’s hard to fight the strength here.

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Bulls Rockin’ to Start 2017

It looks like the bulls are refreshed and ready to go into 2017 with the bears perhaps still nursing a hangover. Early indications show the Dow Industrials up roughly 150 points this morning which would put them within striking distance of 20,000 this week. I have seen a number of very short-term studies over the weekend which all point to higher prices today and possibly tomorrow based off the weak close to 2017 within the context of a higher December.

HOWEVER, equally as interesting, I also saw what happens when the bulls fail to follow through. That would mean a quick trip below last week’s low en route to the bottom of this little pullback, probably next week or so.

While there are lots and lots of crosscurrents during the first few trading days of the new year, I try not to put too much emphasis on leadership. Rather, I look for historical trends to play out. This year, one strong trend is for small and mid caps to underperform the NASDAQ 100 and S&P 500. Yes, you read that right and it’s exactly the opposite of what is being bandied around the media and internet.

Stocks are supposed to be higher today and likely tomorrow. If the bulls can’t hold on, volatility should expand and the largest pullback since the election will continue. No big deal and the highs are not in yet.

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