Thursday, January 1, 2015

Keystone's January Seasonality Factors for Trading the Markets

January begins and the New Year's resolutions are long forgotten. The year always starts out with chatter concerning the January Barometer, January Effect and other rules of thumb. First, the Santa Claus rally continues from last Friday, 12/26/14 through Monday, 1/5/15, only it is not a rally currently--it is a two-day selloff thus far. The SPX was 2090-ish to begin the so-called Santa Claus rally and now sits at 2059 with Friday and Monday yet to play out. To paraphrase the old Wall Street adage, "the stock market may stumble and fall in 2015 if Santa Claus fails to call on Broad and Wall." In general, the years ending in '5' are up; only one is down in the last 13 (130 years).

The January Effect is where small caps tend to have large gains between mid-December and January of each year. The RUT was up in December while the SPX, INDU and COMPQ were down on the month. So typically, shorting small caps is avoided during this period, however, these are not your Grandfather's markets due to the obscene money printing by the Fed. The January Barometer is correct two-thirds of the time and it says that whichever way January goes, so goes the markets. Other traders follow the adage that the way the first five days trade are the way that January will trade, and thus the year.

Further, on the first day of trading, if the day is up, then the markets are up about 80% of the time for the month of January and then up about 80% of the time for the entire yearIf the first day of trading is down, the forecast is a coin flip half the time down and half the time up. January 2013 was a very positive month that led to the big gains for that year. The first day of the year for 2014 was met with selling and January was weak but equities end the year positively not following the expected behavior.

Shipbuilders like to move up in February and FDX and UPS typically follow after that so January is the time to watch and poke around this area for longs. Shipbuilders are beaten down but UPS and FDX are at lofty levels. The shipbuilding sector also greatly effects the KOSPI. The Baltic Dry Index (BDI) remains weak.

Technology tends to top at the beginning of the year; the Q4 tech party quarter is over, and Q1 begins. Tech remains well bid as the central banker easy money keeps buying any stock that sounds high-tech. There is a large chip conference in early January so watch the SOX and SMH, as well as all the individual semiconductor stocks. Beef typically rallies from now into mid-April. Energy typically bottoms in January-February and Q1 is very good for energy stocks, simply look at 2012 and 2013, very robust moves for energy. Energy placed a direct bottom in early February 2014. So oil and energy stocks may recover early in the new year to take a rest from the drubbing over the last six months.

A JPM Healthcare Conference typically occurs in January so the healthcare stocks are in play. There is also an ETF Conference that typically occurs in January each year. The U.S. dollar tends to be strong at the start of the year but it has already ran parabolic since the summer time above 90 to 90.62. A higher dollar will hurt commodities.

The markets are typically up 0.9% in January.  January is typically the top month for the Nasdaq. January is the fifth best month for the year for the SPX and the sixth best month of the year for the Dow Industrials. The best January was 1976 up 14% and worst January was 2009 down 9% (right before the Fed created a stock market bottom with QE1). January tends to account for about 25% of the yearly move of the major indexes. January kicks off the Q1 earnings period which typically returns 2.1% (January thru March).

If the first day of trading for the year is either down -1%, or up +1%, the markets will typically finish the year in this same direction.

New money comes into the market the first few days of each month and especially for the new quarters and the start of the year. Thus, the bulls have an advantage each year as January begins (reference the Santa Claus description in the first paragraph). A full moon occurs 1/4/15 and markets are typically bullish moving through the full moon. A new moon occurs on 1/20/15 and markets are typically bearish through the new moon. Markets are closed on Martin Luther King Day, Monday, 1/19/15. Equities are typically bullish moving into a three-day holiday weekend so some market buoyancy may be expected on 1/15/15 and 1/16/15, however, the new moon occurs on the Tuesday, 1/20/15, when trading resumes.

OpEx is 1/16/15 and is usually an up day. OpEx Friday in January has been up 10 of the last 15 years. During OpEx week, a Tuesday low typically leads to a Wednesday high (1/13/15 to 1/14/15), thus, the bulls have an attractive seasonality set-up for the week of 1/12/15. The ECB meeting is 1/22/15 and President Draghi must comment on the potential full-blown QE sovereign bond-buying program.  FOMC two-day meeting is on 1/27/15 and 1/28/15. The last two days of the month tend to be weak and usually fall about -0.4%. Interestingly, these factors provide the bears an advantage to end the month after the FOMC meeting. The EOM is Friday, 1/30/15.

Other notable dates this month include AA kicking off Q4 earning season on Monday, 1/12/15, the Monthly Jobs Report on Friday, 1/9/15, Retail Sales on 1/14/15, Housing Starts 1/21/15, Consumer Sentiment on 1/16/15 and 1/30/15, Consumer Confidence 1/27/15, President Obama's State of the Union address on 1/20/15. Congress is back in session during January which is a negative for markets. 

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