After opening very strongly, stocks closed flat to slightly lower on Friday closing out a week that also started higher but failed to hold on to those gains. The Dow lost 10-points on Friday while small caps lagged and bonds climbed.
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The I-fund was flat but it is starting 2015 entrenched in a bear market while bonds and the F-fund began the year with an upside breakout from a cup and handle formation. The question is, are we able to trust that light volume holiday action, or was it a smoke screen?
New years can be very interesting. Many folks are on vacation during the holidays and it's probably not until today (Monday) that we should get a "normal" trading day with decent volume. The holiday trading may have been noise and now we'll see which way this market really wants to go, and often times we get big moves to start the first real trading day / week of the New Year.
Another thing that ignites the first week in January is the December jobs report, which comes out on Friday morning. Estimates are looking for a gain of about 245,000 jobs and an unemployment rate of 5.7%. We'll get the jobs report contest going in the forum some time on Tuesday.
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
If the SPY can't recapture the neckline of its inverted head and shoulders, than we have to be concerned about a test of the head, which is one of the more possible outcomes if we don't see the breakout hold, which we haven't yet.
The Wilshire 4500 (S-fund) also fell below its old resistance / recent support line and it tried to find support at the 20-day EMA on Friday.
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
The Russell 2000 actually looks a little better as the support failed intraday on Friday, but it ended back above it by the close. It does still have an open gap below, and we know they like to get filled so that's a possibility.
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Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
The EFA (EAFE Index / I-fund) remains in a bear market to start the new year. Is this going to be a case of the 2014 dog being the hero in 2015? It's possible, but it has to break above the resistance lines first or it would be just a gamble betting against the odds.
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
Today is trading day number +2 on the New Years Day Performance Chart, and it has one of the best historical records of the year - at least from 1950 to 2011, but as I mentioned last week, 4 of the last 6 years it has been negative.
The January seasonality chart confirms that day #2 is one to watch.
Chart provided courtesy of www.sentimentrader.com, analysis by TSP Talk
As I mentioned, the second trading day has actually been down 4 of the past 6 years, so there's no guarantees. But, there were 7 years going back to 1997, when the last day of the year and the first day of the next year were down, and not once was the 2nd trading day negative. Of course the Dow was actually positive on Friday while the S&P only lost 0.03%.
The AGG (Bonds / F-fund) broke out to the upside of a cup and handle formation. This is textbook technical analysis. I didn't think bonds could be so strong with the economy supposedly getting stronger, but unless it was a holiday week fluke, this chart says bonds look bullish.
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
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Thanks for reading! We'll see you back here tomorrow.
Tom Crowley
