Two days ago, I received notification from the United States District Court, Southern District of New York, regarding the matter of MF Global Holdings Ltd. Investment Litigation. The notice says that the Class (former commodity futures customers of MF Global) has settled for 100% of the net equity claims in the lawsuit. In other words, eventually people got their money back, but it took over two years.
The new year started with a thud, as selling pressure that had been building up over the past few days was released. Even after the selling, the $SPX chart is bullish, as long as it remains above 1810.
Equity-only put-call ratios have rolled over to sell signals, from very low (overbought) levels on their charts.
Market breadth had been quite strong -- until January 2nd. Breadth was so negative today that the breadth indicators are just barely clinging to buy signals at this time.
The feature article is our annual market review and forecast issue. Forecasting has taken a back seat to Fed watching these days, but we present some data on how markets in general have fared after two strong years, such as the two that have just concluded.
As we always warn subscribers, a forecast for the following year is more of an exercise in theory than practice. That’s because our indicators are short-term in nature, and we will always strive to be in synch with them. Having said that, the word “forecast” – as it pertains to the stock market – has never seemed as frail to me as it does now. That’s because the Fed’s action has taken center stage.
The rally that began last week with the Fed announcing tapering has broken out strongly to new highs. The fact that this occurred during a seasonally bullish period has certainly helped, too. $SPX will remain bullish as long as it holds above support at 1810.
Equity-only put-call ratios are shown Figure 2 & 3. Both are at new lows now, and as such they are both on buy signals (because they are declining) and they are overbought (because they are so low on their charts).
Even with the volatiilty following the FOMC meeting, SPX still has not broken out of the 1775-1812 range on a closing basis. If it DOES break out to the upside, the positive year-end seasonality should help.
The equity-only put-call ratios moved to sell signals about a week ago, but those signals are now wavering.
Market breadth gave buy signals earlier this week, but now those two breadth indicators are mixed: one on a buy; the other on a sell.
The feature article was designed to be a piece about the January Effect (the period of time when small-caps outperform big-caps, after tax loss selling has ended). But the study revealed some new facts about seasonality, and we make a modification to our Post- Thanksgiving trade because of it.
You’d have to be a pretty long-term subscriber to remember when we used to trade the January Effect. For a long time, it worked like a charm, but then traders started to anticipate the effect, shifting its time frame, and then it stopped working altogether – obliterated, it seems, by conflicting forces, seasonality, and changing market conditions.
The market -- as measured by the S&P 500 Index ($SPX) -- has declined on eight of the last ten days, and that has taken a toll on the technical indicators. However, $SPX is sitting right on support at or just below 1780 (see Figure 1). Hence, shorting the market now could be a mistake.