12/28/11
Stocks were mostly flat yesterday as the market attempted a few intraday rallies but finally settled about where they started. The Dow lost a couple of points on the day but the other major indices saw slight gains.
For the TSP, the C-fund ticked up 0.01% yesterday, the S-fund gained 0.28%, the I-fund was up 0.28%, and the F-fund (bonds) added 0.14%.
The breakout above the descending trendline last week will become the area to watch for support. That line also happens to be close to where the neckline of the inverted head and would be.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
The index is trading above the major moving averages with the 50-day EMA now just 5-points away from the 200-day EMA.
Many of the indicators are quite stretched to the overbought side suggesting a pullback or at least some sideways action in the coming days, but these last few days of the year are very much affected by money managers selling their losers and padding their portfolios with winners. I think many of the managers underperformed this year and they might be looking to do more buying than selling in the next 2 days - despite the charts and indicators showing otherwise. Their buying may not be enough to keep the indices positive, but it could provide a bid under any dips keeping any pullbacks under control.
As our friend "show-me" on our message board pointed out, the results of the last 5 or 6 years have actually not been consistently positive during the final week of the year, but going back to 1950 the data are still very positive overall.
Sentimentrader.com uses a series of seasonality indicators including, month of the year, day of the week, presidential cycles, 6-month cycle, relation to holidays, etc. to come up with a seasonality strength rating for each day of the year. It ranges from 0 (worst) to 4 (best). Only one day in all of 2011 and 2012 was rated as a 4, and that happens to be December 30, 2011. This is purely based on seasonality...
Data provided courtesy of www.sentimentrader.com
Here is the seasonality chart specifically for the days before and after the New Year's Day NYSE holiday, which is being observed on Monday Jan 2nd...
Chart provided courtesy of www.sentimentrader.com
If you recall, we've talked about a "January Indicator" which suggests that the results in January tends to dictate what kind of year we are going to have, and broken down further, the first week of the new year, and even the first few days have a similar predictive ability. I don't believe the data backs this up as much as it is talked about, and I didn't have time to research it, but it is something to think about next week. Like many trends like this, once we discover them, they tend to be less effective. Remember the Super Bowl trend?
Anyway, last January the S&P 500 was up 1.1% in the first 5 days of trading. With 3 trading days left in 2011, the S&P 500 is up 0.56%, so the January Indicator in 2011 said we have an up year and barring a 2% drop in the next two days, it looks like we will hang onto a gain. Next week might be an important indication of what type of year 2012 will be.
Thanks for reading! We'll see you back here tomorrow.
Tom Crowley
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