Tuesday, January 26, 2010

The January Barometer Is Sending Sell Signals

I know that yesterday I said I'd write about creating your own currency, but, having spent the bulk of the day poring over New york State Surrogate's Court Procedure (in my case, this is an exercise in learning how to get a house for nothing from Bank of America, but that's another matter), I haven't had time to crystalize my thinking on the topic. Suffice it to be said that anyone can create their own currency, the trick being getting others to accept it. I will make every effort to cover this enticing topic tomorrow.

As for today, the stock players didn't do well. Markets were decidedly higher in the AM, but began to unravel in pretty distinctive fashion around 2:00 pm EST. In other words, the nascent rally tanked into oblivion, leaving investors and fund managers holding a little bit less than they did yesterday. All averages were lower on the day, though the Dow performed better than the others.

As of Friday, the major indices had fallen below where they closed 2009, bring us to the first 2010 mention of the "January Barometer," which invokes the old saw, "as goes January, so goes the rest of the year." The theory, which holds true 90% of the time, is based upon the movement of the S&P 500. It was dead wrong last year as stocks sulked in January and February, but made up the lost ground and then some beginning in March.

So far this year, the S&P is down, from 1115.10 on December 31, 2009, to today's close, so, unless the market decides not to continue to scare the bejesus out of everyone, the tone will be set for a losing year on Wall Street. Hogwash! Balderdash! The nerve of some people to suggest that one could lose money investing in stocks. Unheard of!

Well, since the predictive value of this "barometer" is 90%, and it was off last year (I know, I know, that doesn't change the odds), I'd be looking for some downside movement over the next month to six months, for starters.

Dow 10,194.29, -2.57 (0.03%)
NASDAQ 2,203.73, -7.07 (0.32%)
S&P 500 1,092.17, -4.61 (0.42%)
NYSE Composite 7,028.32, -44.81 (0.63%)

Declining issues danced on the heads of advancers, 4283-2220, belying the soft headline numbers. It's just this kind of stealth movement that sets up investors for a nasty roller coaster ride. The gap between new highs and new lows narrowed to 161-78, with the lows rising to their highest level in at least a month. The turn is upon us. The market appears to have done everything but roll over, but there's every indication that it will. Volume was better than yesterday, though nowhere near as robust as the selling days of the past week, another indicator pointing towards the floor.

NYSE Volume 5,477,897,000
NASDAQ Volume 2,406,876,000

Like stocks, commodities didn't move much. Oil fell 3 cents, to $74.68. Gold was up $3.20, to close at an even $1,100.00. Silver continues to take the brunt of the selling, off another 31 cents, to $16.84. The selling in gold and silver seems to be based upon speculation that the dollar's decline is over. For much more on that topic, from a person with eminently more knowledge than myself, I direct you to commentary from Kitko's John Nadler.

Considering the massive move in gold - less so in silver - over the past decade, a correction on the back of a rising dollar makes plenty of sense. If, as I've been saying for years, and the Fed has been fighting for an even longer time, deflation continues to be the crazy aunt in the attic which nobody particularly cares to have roaming about the house in free fashion.

All one has to do these days is go food shopping at the neighborhood market to see deflation in progress. Or, head to a dollar store or witness the fast food chains pushing not prices lower, but portions higher - for the same price, a la Burger King's larger-than-McDonald's double cheeseburger (it is bigger and, yes, better) to understand the dynamics of deflation, which begs the question, if people are willing to pay to lose weight (Weight Watchers, Jenny Craig, etc.), shouldn't restaurants pay us to eat?

It may come to that.

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