SPX It's Worst January...Barometer or Not...You've Been Misled

DJIA - 148.15, -1.82% SP500 - 19.26, -2.28% NASDAQ Comp. - 31.42, -2.08% Russell 2000 - 9.71, -2.14% Exchange NYSE NASD Advancing 986 916 Declining 2,722 1,837 Oil Gold SOX 208.26 -4.07 VIX 44.84 +2.21 The VIX moved up confirming the drop in the SPX on Friday. Strongest Sectors: XLV -1.06%...XLE -1.39%...XLU -2.00% Weakest Sectors: XLB -3.92%...XLP -3.06%...XLK -2.97% Sector Watch Up Trending: Sideways: XLE, XLP, XLU, XLY, XLV, XLI, XLB, XLK Down Trending: XLF The SPX finished the month of January down -8.6%. The SPX closed Friday at 825.88 down from 903.25 on December 31. So what does that tell us? We are regularly asked about the “January Barometer” and what do we think about it? Sometimes the questioner is even equipped with a statistic from some source that makes it sound like all a trader needs to do is look at January and then wah-la the odds are in trader’s favor for the rest of the year. We respond with something like, “you can’t trade the market based on past statistics because if you don’t know the range, the mean, the deviation, the R2, the drawdown, the draw-up, the correlation coefficient” and a few other terms we throw in for clarity, “you don’t really know what the statistic you just cited actually means.” By the time we complete the answer, the questioner is often disappointed because they thought they had found the “holy grail” to trading successfully for the rest of the year and our response correctly destroyed any confidence they had in a worthless statistic. Yes, you are reading correctly “a worthless statistic." Actually, it’s not worthless to a financial writer, because someone who doesn’t really know what the he_ _ they are talking about, but wants to sound like they do, loves to bring up the January Barometer. Why? Because it makes them sound like they know what they are talking about. (In case you are wondering the blank fill in is he c k.) What too many people and traders are not aware of is the old adage, “there are lies, there are damn lies and then there are statistics.” You see a good statistician or quantitative analyst can take a numerical state and create whatever leading or misleading impression they want depending on what they choose to focus on and what they choose to delete. Having spent many years doing quantitative analysis we could run a least a couple dozen statistical variations on the “JB” and help you reach any conclusion we wanted. Not that it would help you trade better, but it certainly would impress you. Just to prove the point we will share with you one statistical variation that we have never seen in print or heard mentioned before about the “JB.” Did you know, and we suspect that you didn’t, that since 1960 when the SPX was down in January, 53% of the time the SPX is higher at the end of the year than it closed at the end of January! What that means is that it is more probable that the SPX will close higher than the January close, when January produces a negative return. Now how does that help you trade in 2009? The reality is, it doesn’t and neither does the January Barometer. The reality is regardless of what the market does in January you had better focus on Dave’s Insight: To trade profitably focus on trend, support and resistance and momentum. In fact what does the “JB” tell you about trend, support and resistance and momentum for the balance of 2009? Absolutely nothing! “Say it again, one, two what is it good for? Absolutely nothing,” as it relates to the trend, support and resistance and momentum for the balance of the year. So help your friends pull their head out of the “JB” and trade the trend! The broad indices fell for the second consecutive day on Friday. The downward momentum slowed from Thursday as the number of advancing stocks rose by 300 on the Nasdaq. SOX momentum also slowed on Friday. After strong earnings Thursday evening AMZN rose $8.82 or 17.64% closing above horizontal resistance for a breakout. Index Commentary The DJIA, SPX, Nasdaq and RUT which moved below the low of the high day on Thursday all moved lower towards horizontal support on Friday. Stock Commentary Rail stocks BNI, CSX and UNP moved lower while NSC formed a hammer, potential bullish harami. The chart patterns on steel, semiconductor and coal stocks which weakened on Thursday STLD rolled over NUE, SCHN and X confirmed Thursday’s bearish harami NVLS formed an inverted hammer MRVL formed a white spinning top XLNX formed a bearish engulfing pattern NSM, ALTR, LLTC moved lower TXN formed a black hammer KOL, BTU, JRCC MEE, CNX, FCL and WLT followed Thursday’s bearish candles by moving lower. Earnings Friday, Jan 30 AME +0.66 inline +0.66 estimates ACI +0.44 beat +0.39 est. CVX +2.44 beat +1.81 est. XOM +1.55 beat +1.45 est. HON +0.97 inline +0.97 est. IVZ +0.17 inline +0.17 est. KLIC -0.37 below -0.26 est. FSTR +0.55 beat +0.49 est. PCAR +0.31 beat +0.30 est. PG +1.58 inline +1.58 Numbers exclude non-recurring items Mon Feb 2 BMO – HUM AMC – AFL, HOLX, MSTR, SNDK Tues Feb 3 BMO – AFAM, ADM, AVP, BP, CAM, CME, DOW, DHI, MRO, MRK, MOT, MYGN, NOC, PRGO, UPS AMC – BYI, CTX, LIMN, MEE, MET, ERTS, USNA, DIS, YUM Wed Feb 4 BMO – AGN, BCO, CLX, ITT, KFT, NOV, PM, RL, SNA AMC – AKAM, CSCO, EXBD, XRAY, DLB, EOG, FMC, LVS, NVLS, PRU, PHM, RJECT, SPTN, SUN, V Thu Feb 5 Fri Feb 6 BMO – BIIB Stocks to Watch on Monday Leading Stocks: Holding Above 30 DMA BCO…ESI…JW.A…MYGN…BCR…MON…RIMM…SYNA…BLUD…AME…APH…DLTR…STRA…AYE…PCP…AET…GES…GME…IIVI…NE…RIO…SWN…URBN…POT…ATW…CAM…MOS…NOV…RIG…AAPL…BIIB…JCOM…WCG…VAR…CELG…GILD…RCI..CL…ICLR Moving Above 30 DMA = 4 AMZN…CHTT…FLS…RTN Moving Below 30 DMA = 10 CTSH, DNA, GIS, JOSB, K, MMM, MTD, NIHD, PCR, ROST Staying Below 30 DMA AGN, AMED, ATK, BYI, CIR, ESRX, HLF, HP, MCRS, NDAQ, NEU, NGS, PSSI, SPN, WMS, DV, LAYN, CCC, TEVA, CERN, FLIR, QSII, JEC, KEX, OSIP, PCLN, PETS, SHW, TECH, UTX, BAP, ACL, FWLT, HDB, LNN, OI, ADBE, AMX, CBST, DECK, FLR, MBT, SNA, VMI, AFAM, EPR, FSTR, HAS, LFC, MTW, SOHU, VIP, NDAQ, ANSS, CHU, EZPW, NILE, PSYS, VIVO, WAB, ENDP, IRIS, ISRG, SPTN, PPD, PRGO, SINA, AXYS Friday’s Action Moving Up: MA, FSLR, V Moving Down: SCHN, X, POT, FWLT, NUE, MON, DRYS, STRA, HANS, ESRX, BRCM, ZION, CNX, CF, MS, UAUA, CLF, GS, AGU, BTU, ANR, GRMN, INFY, PNRA, SOHU, KMT, LCC, LAMR, IPI, KRE, AEM Intermediate Term Market Trend: Neutral – DJIA, SPX, Nasdaq, RUT Short Term Market Trend: Down