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Category: Dr. Duke's Blog
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The Standard and Poor’s 500 Index (SPX) opened this first full week of the new year at 3218 and closed today at 3265, for an increase of 47 points or 1.5%. The January Barometer, was created by Yale Hirsch in 1972 and publicized in his Stock Traders Almanac, currently run by his son, Jeff Hirsch. There are two parts of the January Barometer: trading results for the S&P 500 index over the first five days of January and then for the full month of January. The first five days were narrowly positive with the new year opening at 3245 and the fifth trading day, 1/8/20, closing at 3253. So now we anticipate the close in three weeks for the full January barometer forecast for the year. Both measures have success records of over 80% in predicting the direction of the market for the coming year.

SPX trading volume remained weak, running roughly at or below the 50-day moving average (dma) all week. Trading volume fell off today almost like we were entering a three-day weekend.

The volatility index for the S&P 500 options, VIX, opened the week at 15.5%, and steadily declined to close today at 12.5%. This suggests that the mood of the large institutional traders remains largely bullish on the market.

IWM, the ETF based on the Russell 2000 group of companies, traded more bearishly than SPX, opening the week at 163.85 and closing at 164.89, up 0.6%. These are the high beta stocks that should be leading this bull market, but they aren’t. The bulls remain somewhat tentative.
The NASDAQ Composite index set the pace for the bulls this week, opening at 8944 and closing at 9179, up 2.6% for the week, eclipsing the S&P 500 by a full percentage point.

NASDAQ’s trading volume was also much more bullish, running consistently above the 50-day moving average (dma) every day this week.

This market is undeniably strong. In fact, it is so strong that it unnerves many observers, and I feel some of that sentiment as well. It is interesting that the current crop of bears can only argue that the bull market has lasted too long, but they have no argument other than the length of this bull market. The economic data are strong, and the Fed remains committed to low interest rates.

Draw trend lines from early October through today on the SPX, IWM and NASDAQ charts and I think you will see something interesting. Note that SPX and NASDAQ are trading well above their trend lines. Even the recent hiccups over the last couple of days of December and first couple of days in the new year didn’t take either index close to that trend line. But the IWM trendline is markedly different. Intraday trading on January 2nd touched the trend line but bounced higher. But the price action on January 3rd broke that trend line and IWM remains below the trend line today. I consider this a shot across the bow of the bulls’ ship. The bulls are running, but that run is largely in the high-tech favorites, the FANG stocks and others. You see that favor in the strong performance of NASDAQ versus the S&P 500. The high beta stocks, that are members of the Russell 2000 and make up the IWM ETF, are trading sideways. These are the stocks that should be leading the bulls’ charge, but they aren’t.

My posture remains unchanged. I am bullish, but I also remain cautious. This week’s market largely ignored the sword rattling in the Middle East, but this market remains nervous. The large institutional traders will act quickly to preserve their profits. They will sell first and analyze their actions later.

Take advantage of the bullish run, but stay alert. Don’t get too euphoric.