As Goes January…

Unlike in December, the market could not overcome the poor jobs report on Friday as stocks dropped sharply, closing at their lowest levels of the day. Not a good start to January.

As the old adage says; As goes January, so goes the year. Some take it a step further and say; As goes the first week in January, so goes the month of January, … and so goes the year.

After a strong +3% start on January 2nd, the S&P 500 finished the first full week of January down 4.4%, and is now down 1.3% for the new year.

In 2008 the S&P dropped 4.0% in its first 6 days of trading and ended January down 6%, and you probably know how the 2008 story ended.

Friday’s selling brought the chart of the S&P 500 into an interesting situation. If the uptrend is going to continue, the rally needs to resume here very quickly. We have a rising wedge (which is bearish) that is on the bring of breaking down. We also have an ascending triangle (which is bullish in an uptrend but not so much in a bear market) that is also facing a do or die situation as the S&P closed just south of the support levels.

Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk

Volume appears light in comparison to the huge volume we had in the fall, but is just off of the volume levels of this same time last year. It should pick up the further we move away from the holidays.

The selling took us off of the extreme overbought levels we had hit earlier last week, and the put/call ratios have turned down from the overly bullish readings. There is still a lot of room to move down on those indicators so it will be interesting to see if the Inauguration can stimulate buying despite those overbought / overly bullish conditions.

Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk

Oil had made a very nice bounce off of its lows moving from the mid-30’s to over $50 a barrel in less than two-weeks, but it failed to make a higher higher, meaning the downtrend is still intact. It has since moved back down to $40 a barrel.

Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk

The question is: Is oil moving down because of speculators again – the way it did on the way up – or is this a real slowdown in demand because of the slowing global economy? It’s probably a little of both, but I’d say the traders are having the most impact on the oil market right now. That’s the only way to explain a 75% drop in 6-months. Not that oil is not properly valued now at $40 a barrel. It could be. But that suggests that it was not worth $147 six months ago.

The falling price has to be some indication of decreased demand, which is not a great sign for the economy, but the fact that it is putting money back in the pockets of American each month makes the it act similar to a tax decrease, and that is certainly good news for the economy. And, it acts more like a tax increase than one of the stimulus package tax credits being handed out. The people who actually buy the gasoline are the ones getting the break.

That’s all for today. Thanks for reading. These market commentary are updated daily on TSP Talk.

Tom
www.tsptalk.com