General Information and Analysis
Unless you are asleep, you know
the USA stock market has had a significant and swift selloff in 2014. January's market was the worst selloff in
January since the bull market began 5 years ago.
January is usually a very bullish
month for capital flows into financial markets - specifically stocks. Pension plans, retirement accounts and mutual
funds very often receive a large influx of cash at the year-end and early into
the New Year. These must be
invested. Managers buy stocks or they
RISK having their performance lag the S&P500.
Consequently, January becomes historically
the best month to invest in stocks during bull markets. Since 1928, the S&P 500 has gained 1.25 %
on average in January.
Since January this year is very
different, this provides a warning sign for investors. January for many years has set the direction
for the stock market the rest of the year.
The accuracy rate of January forecasting the trend direction for the year is high: 81.6 % of the time.
However, the January pattern does
not always follow the script. 2009 was
an example of where the market plunged 8.6% in January, and finished 23.5%
higher by year-end.
In 2014, selling took hold, and no one
would argue that it has been a swift and painful fall (painful if you were
long). There were many market internal
signals that traders/investors had capitulated.
When this happens, a short term
rally typically follows. In auction market theory, all the sellers have sold,
and the market changes to a balance, taking a breather before price explores
where new price value finds equilibrium. All the sellers
that want to sell have sold, and buyers are not entering the market in large
numbers.
When we get this oversold, the
stock market's temporary value exploration suggests a rally over the next 20
days or so. If it rallies, what are good
short term investments?
The best way to invest in this
kind of rally (if there is one) is to buy the best-performing stocks and ETFs from
last month. Spend some time researching
stocks (and ETFs) that bucked last month's trend. Looking on Stockcarts.com, you would look for
ETFs (for example), and you would find 3 industry groups that posted positive
returns.
1.
Real Estate Trusts (REITS) - up 2.9% last month
2.
Utilities - up 2.9%
3.
Pharmaceutical - up 1.3%
These three make a student of
markets wonder, as the talking-heads on television suggest the fall is the
Federal Reserve tapering and interest rates threatening to rise. That must be questioned, because why would
two of the most interest-rate-sensitive sectors be top performers last month?
Emerging market turmoil has also
been blamed. There would be few (even
myself) who would argue that China is showing signs of entering a
downturn. But there are several smaller
countries that are doing well including but not limited to Dubai, Vietnam,
Bulgaria, and yes Egypt.
One ends up thinking that
basically that most of the investors and traders thought the stock market would
never go into a correction at the beginning of the year, and they like a flock
of starlings every one swung to up to down.
Fear entered, and the margin debt caused fear.
The stock market is oversold at
this point, and statistical analysis (along with VIX) suggests we may now be
set for a short term rally. Will 2009 repeat itself? It appears the answer is no, but it is
anyone's guess (and guess it would be) whether the market will go up or
down. Why? Because it depends on the
context and investor's reaction emotionally to the context. It is shaping up as a tough year in the
global economy, which in turn affects the USA economy.
If you would like to have a list
of the 50 top performing stocks delivered in email; check out http://www.ino.com/
US
Comment: (Data from 2/5/2014)
Comment for2/6/2014
|
Measure
|
Indicator
|
Ranking
|
Weekly RSI (14)
|
WeeklyRSI
|
51.4
|
Neutral
|
Long Term MVA (200 day MVA)
|
200 MVA
|
3.37%
|
Bullish
|
5 Day Slope of 55 day MVA
|
Slope55MA
|
-0.11%
|
Bearish
|
Intermediate Trend (Using ADX)
|
ADX(14)
|
33.74
|
Bearish
|
Short Term Trend (Daily RSI 3)
|
RSI(3)
|
29.87
|
Neutral/rising
|
Relative Volatility ATR vs. 1Stdev
|
ATR(90)
|
1.18%
|
Volatile Bear
|
VIX - MACD 10/30 (slope down)
|
MACD
|
1.310
|
Bearish
|
The table above
is a rating for intermediate and long term trend in the S&P500. I used the S&P 500 as the indicator for
the USA stock market. For day traders:
You may find it useful to trade in the direction of the trend. However, looking at any daily chart over lots
of years, the trading direction for the day is pretty random.
After yesterday, all intermediate
and short term indicators are bearish.
The long-term direction (200 Day MVA) is still bullish.
The market range on SPX was smaller
than yesterday and smaller than the 8 previous days (to yesterday) The Big
Support is 1700 on SPX.
Turning to futures, the S&P
500 support is 1734 to 1724.
The S&P 500 Buillish Pct Index
issued a sell signal (albiet it is not strong as it has not broken the P&F
trend line off the bottom.)
S&P PIVOT ES Mini March Contract - Tuesday - Useful on Thursday
2/6/2014
Yesterday 2/5/2014
|
2/4/2014
|
|||
High
|
1750.75
|
High
|
1753.50
|
|
Low
|
1732.00
|
Low
|
1734.00
|
|
Close
|
1744.00
|
Close
|
1743.50
|
|
R2
|
1761.00
|
R2
|
1763.25
|
|
R1
|
1752.50
|
R1
|
1753.50
|
|
Pivot
|
1742.25
|
Pivot
|
1743.75
|
|
S1
|
1733.75
|
S1
|
1734.00
|
|
S2
|
1723.50
|
S2
|
1724.25
|
|
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