Sunday, January 9, 2011

Why January is Important for the Bulls

It looked like shorts might take control Thursday as there were some early bouts of huge selling in the ES and cash, UBS, JPM & MERRILL were all sellers in the 1270-72 area. Talk of a big basket trade going trough selling SPX by a large US house.

The big stir on the floor was the Barclay’s non farm pay roll estimate. Most estimates on the floor were between 100 to 200k but Barclay’s came out saying they were looking for 580k. I have seen this many times before and it is called " Raising the Bar for the NFP Report" or "Counter Trend Friday". The above was sent to subscribers after the close Thursday.Three reasons above for selling the Open on Friday. 

Longs ended up supporting the 1266 area on Thursday. The headline numbers from this Friday morning's Employment Situation were a mixed bag: payrolls disappointed a bit, coming in at the lower end of consensus, but there was sizable drop in the unemployment rate, which is bullish ?. 

Everyone expected the bulls to be able to run the ES to new highs today, another reason to sell the Open, and would like to see the Russell 2000 confirm strength to allow the up leg to continue throughout next week. A close in the ES below 1265, however, suggests material new highs next week are less likely.

Looking at yesterday's Federal Reserve money supply statistics (released after the close), liquidity remains exceptionally high, which makes corrections likely to be short-lived or simply evidenced by sideways action in the indexes.

The January Barometer has a 90% rate of success. The essence of the January Barometer is simple, as January goes, so goes the year. If January is up, the entire year will be up and vice versa.

90% Accuracy - Too Good to be True?

From 1950 to 2008 this pattern has played out most of the time. There were only five times when it outright failed and seven times when it wasn't exactly accurate. According to the Stock Trader's Almanac, the Barometer has a 90% accuracy ratio. In terms of odds, that's about as good as it gets

No Price action Intraday Review/Setups for Friday as long as no comments to this Blog

1 comment:

  1. Excellent commentary. Amazing how succinctly it can be done while CNBC goes on 18 hours a day.