Stocks Bounce, But Rally Is Short-Lived Following MLK Holiday

Oddly buoyed by bad data out of China (missed GDP estimates at 6.9%), stocks made a half-hearted attempt to stem some of the losses it took in the first two weeks of the year, rising by about one percent across the three major indices early, but the rally could not find its legs and sellers soon took over, sending the NASDAQ into negative territory for the ninth time in 11 sessions this year.

While there's still eight trading days remaining in the month, the January Barometer merits mention at this juncture if only because the month, as a whole, seems to be lost.

Readers will be reminded that the January Barometer - which posits that "as goes January, so goes the year" - has a roughly 90% correlation. The only question now for traders seems to be not whether the year of 2016 will be a bad one, but just how bad it will end.

Indications continue to suggest that the correction is far from over and the potential of an outright bear market is only being kept off the table due to some select large cap stocks. 65% of stocks on the S&P 500 are already in a bear market, i.e., off 20% or more, and the Russell 2000 is down more than 20% from previous highs.

Equities may have gotten a one-day reprieve from some non-committal buyers of the dip, but that strategy seems to have worn out its welcome. Seasoned traders are becoming more and more risk-averse, seeking the safety of large caps with steady dividends, strong balance sheets (there aren't many), and, as the 10-year-note is telling us quite plainly, fixed income investments.

Today's volatility included a 270-point round trip for the Dow, which was down more than 100 points midday. Wednesday may prove more challenging as markets approach the traditional options expiry on the third Friday of the month, at the end of the current week.

Today's Closing Quotes:
S&P 500: 1,881.33, +1.00 (0.05%)
Dow: 16,016.02, +27.94 (0.17%)
NASADAQ: 4,476.95, -11.47 (0.26%)

Crude Oil 28.59 -2.82% Gold 1,090.70 +0.01% EUR/USD 1.0908 +0.17% 10-Yr Bond 2.0350 +0.10% Corn 368.50 +1.45% Copper 1.97 +1.11% Silver 14.07 +1.29% Natural Gas 2.08 -0.76% Russell 2000 994.87 -1.28% VIX 26.05 -3.59% BATS 1000 20,041.25 -0.13% GBP/USD 1.4160 -0.66% USD/JPY 117.6320 +0.18%

Mango! Stocks Rocked Again on Huge Volume Spike

Mango!

There is simply too much data swirling around today for an accurate assessment, but, if anything, this looks like the absolute end of the bull market, now in its 59th month.

Believe it or not, there was actually an analyst on CNBC saying they're advising clients to buy! The VIX was down more than 30% at certain points during the day.

The January Barometer is predicting a sour 2014.

We'll have a special report by noon Saturday, which should not be missed as it will provide more granularity about this week's market events.

Just for starters, the new highs-new lows flipped over today, the 10-year note closed at 2.72%.

Here are the indices, at the close, for the week:
Dow -579.45 (-3.52%)
NASDAQ -69.41 (-1.65%)
S&P 500 -48.41 (-2.63%)

All this is just today:
DOW 15,879.11, -318.24 (-1.96%)
NASDAQ 4,128.17, -90.70 (-2.15%)
S&P 1,790.29, -38.17 (-2.09%)
10-Yr Note 100.23, +1.00 (+1.00%) Yield: 2.72%
NASDAQ Volume 2.32 Bil
NYSE Volume 4.61 Bil
Combined NYSE & NASDAQ Advance - Decline: 803-4983
Combined NYSE & NASDAQ New highs - New lows: 72-106
WTI crude oil: 96.64, -0.68
Gold: 1,264.30, +2.00
Silver: 19.76, -0.245
Corn: 430.00 +0.50

January Barometer? Stocks Fall on First Trading Day of 2014

Blasphemy!

Stocks are only supposed to go higher, and the idea that we would begin the new year with a large selloff in stocks is a disturbing development to those in charge of propagandizing our glorious and ever-expanding economy.

The last time stocks fell on the first trading day of a new year was 2008, and, unless you've been living under a rock the past five years, you know what happened that year.

Not to say that a precipitous decline on the first trading day of the new year is a bad omen or a signal of a down year for stocks, but, referencing the January Effect, there's an 88% positive correlation between the direction of stocks for the entire month of January and the rest of the year, so, starting off with a sharp decline is not the best indication of general health, wealth and happiness going forward.

Obviously, it's too early to tell wither stocks go from here, but the apologists were out in force on CNBC, citing the fact that volume was on the very low side, something they neglected to inform upon during the late-year rally of the past two weeks, when trading volume was among the lowest of the year. Actually, Thursday's volume was higher than the average of the previous two weeks on a daily basis, and closer to normal than at any time since December 16.

With the major indices all up more than 25% in 2013, it would not come as a surprise to anyone should the market face some headwinds in 2014. It deserves mention that while the indices did very well, profits - as Larry Kudlow so often opines, "the mother's milk of stocks" - were higher by only six percent for the year, trailing paper gains by a margin wide enough to haul a bear trap through.

The bad news for holders of stock certificates (or the electrons which signify ownership in a brokerage account - not quite exactly the same thing) is that the selling was rather broad-based, as per the advance-decline line. The good news for the rest of us - those who own hard assets like land, gold, silver, machinery and vehicles - is that deflation seems to not want to go away. Gold and silver were higher, with silver shining at a nearly 4% gain on the day, and corn was down, so the price of corn in silver terms continues the trend lower, which, as our notes imply, according to Adam Smith, that is a deflationary trend of great significance. Crude oil also was off sharply.

Lower prices for all manner of consumer goods would be a definite boon for consumers and the general economy, though it's arguable that Wall Street and the international banking cartel headquartered at the Federal Reserve and World Bank might not be so pleased.

A sneaking suspicion that another grand transfer of wealth - on a scale beyond that of 2008-09 - is about to commence has been bandied about by skeptics of the recovery story. Maybe it's just a one-day trade and there's nothing more to it, though it needs to be pointed out that trades made today - especially those sales at a profit - won't necessarily be taxed for a very long time, around March 15, 2015, to be precise. Now, that could explain more about today's price action than just about any other macro or micro-economic factor present.

DOW 16,441.35, -135.31 (-0.82%)
NASDAQ 4,143.07, -33.52 (-0.80%)
S&P 1,831.98, -16.38 (-0.89%)
10-Yr Note 98.00, -0.03 (-0.03%) Yield: 2.99%
NASDAQ Volume 1.62 Bil
NYSE Volume 3.06 Bil
Combined NYSE & NASDAQ Advance - Decline: 1995-3764
Combined NYSE & NASDAQ New highs - New lows: 185-41
WTI crude oil: 95.44, -2.98
Gold: 1,225.20, +22.90
Silver: 20.13, +0.758
Corn: 420.50, -1.50

Another Great Session for Equity Day-Traders as January Posts Positive

Yesterday, a gap lower at the open. Today, a gap up.

This is all according to plan, which excludes individual investors to the great benefit to those in the know.

Imagine being an insider. On Monday, you buy shares of your particular stocks of the day at the lows of the day, around 10:00 to 10:30 am ET and all day long, you watch as they gain in value. Then, on Tuesday, you sell at some high point right before the dismal Chicago PMI and Conference Board's Consumer Confidence number (more on thses later). Naturally, you ignored the poor showing from the Case-Shiller 20-city index, because nobody cares about housing, right?

You're a winner, in all aspects except for honesty, integrity and fairness. Worry not, because you or your firm made massive money all through the month of January, as the Dow rose 3%, the S&P gained 4% and the NASDAQ was up 8%.

Smashing! Except that gold and silver trounced your paper-made profits. Gold finished the month of January with a 13.9% gain and silver was up 19% for the month. And there's no chance of the metals going to zero and no counter-party risk. Well, golly.

As for that Chicago PMI, the market was looking for a number of 62.8, after December's 62.2 print. The reality was a poor 60.2, the lowest number since August, 2011, another indication that the holiday season in particular was something of an over-hyped bust and that the recovery continues to be choppy and not well-anchored. Bummer!

According to the Conference Board, consumer confidence was measured at 64.8 in December, but flopped to 61.1 in January. Double bummer!

The aforementioned Case-Shiller data, albeit back-dated, showed that home prices fell 3.7% from November 2010 through November 2011. Prices fell 0.7% (adjusted) or 1.3% (unadjusted) in November from October, as 19 of 20 cities experienced price declines. Phoenix was the only city registering a positive figure.

Not to worry. January's window dressing is complete and there's nothing to worry about heading into February... except for that nagging European debt crisis, Greece, the utter collapse in the Baltic Dry Index, and the looming showdown in washington over whether or not to extend the Bush tax cuts another 10 months, as congress, rather than deal with real issues, took the easy route in December and compromised to keep them intact through the end of February (they'll extend, as extending is part of their "extend and pretend" strategy).

No, no, nothing can go wrong. Let's just keep day-trading until...

By the way, volume continues to be dreadful, even though the Fed, through it's ZIRP to infinity policy, has forced fund managers into much more riskier trading scenarios than they normally would endeavor.

You can cite the January Barometer, which posits that "as goes January, so goes the rest of the year." except for last year, that is.

Well, keep trading stocks. They matter. Right?

Dow 12,632.91, -20.81 (0.16%)
NASDAQ 2,813.84, +1.90 (0.07%)
S&P 500 1,312.40, -0.61 (0.05%)
NYSE Composite 7,838.30, +3.89 (0.05%)
NASDAQ Volume 1,602,785,875
NYSE Volume 4,156,928,000
Combined NYSE & NASDAQ Advance - Decline: 3135-2441
Combined NYSE & NASDAQ New highs - New lows: 276-22 (extreme, poised for reversal or breakout)
WTI crude oil: 98.48, -0.30
Gold: 1,737.80, +6.80
Silver: 33.26, -0.27

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.

January Barometer Predicts Down Year

For all of the optimism associated with a 3-or-4-day winning streak (depending on the index) and a big upside day on Wednesday, it may come as somewhat of a surprise to some that the major US equity indices all ended the week with losses.

The widely-watched Dow Jones Industrial Average tacked on more losses to Thursday's massive beat-down in Friday's one-sided trade, sending the index into negative ground, down 77 points for the week. The NASDAQ fared better, down less than a point since last Friday. The S&P 500 gave back 6 points, while the NYSE Composite finished higher by a slim 0.28 points.

Were the markets stabilizing? Hardly. Investors not only had to navigate through a slew of 4th quarter and full year 2008 earnings reports, but the stew of demoralizing economic reports continued in deluge fashion. There were some hopeful signs - like the government's initial estimate of 4th quarter '08 GDP posting a decline of 3.8% (better than estimates) - but not enough to keep serious money on the sidelines or increasingly heading toward bonds and precious metals.

Dow 8,000.86, -148.15 (1.82%)
NASDAQ 1,476.42, -31.42 (2.08%)
S&P 500 825.88, -19.26 (2.28%)
NYSE Composite 5,195.83, -105.07 (1.98%)

Also, the averages are not showing any signs of making upside progress. Since the fallout of November 20, they have recovered slightly, but mostly went sideways.

This being the final trading day of January, it should come as no comfort that the January Barometer is clearly indicating a down year for stocks in 2009, with all major indices closing the month anywhere from 7 to 9% lower than they had begun. Based on the adage "as goes January, so goes the year," the January Barometer has as solid a track record as any simple indicator, with accuracy in the range of upwards of 80%, depending on which sources are cited.

The day's internals were as unappealing as the headline numbers. Declining issues outflanked advancers, 4558-1903. There were more new lows than new highs, 253-12. This is the most troubling of all indicators, due entirely to its persistence. There have been only a handful of days where this condition did not persist - i.e., more new lows than highs in the daily data - since I have been tracking it since October 31, 2007. This is a 15-month, one-sided trend that has always declared general direction.

Of course, this was the natural conclusion of a 54 or 58-week bull market from 2003-2007 - one of the longest in history - built mostly on bad investments, incompetent fiscal policy, absence of regulations and general thievery. That's why the correction has been so severe. The foundation of the previous bull was built on sand.

Volume was as strong on Friday as it was on Tuesday's 200-point Dow rally, which also is not encouraging for stocks. Not to worry, the same kind of serious correction is occurring around the globe.

NYSE Volume 1,500,684,000
NASDAQ Volume 2,108,279,000

Commodities were the place to be. Crude oil was up 24 cents, to $41.68, though natural gas futures fell to $4.39, an obviator of oversupply. Gold zipped ahead $21.90, to $928.40, a multi-week high. Silver advanced 42 cents, to $12.57, making silver no longer a bargain and possibly short-term oversold, though it may be risky to rest on that assumption.

Employment and housing continue to be the main trouble spots in the economy, and those areas are likely to continue to deteriorate until there's some real relief for the middle class in government policy, namely, immediate tax relief via relaxed withholding, though our pals in Washington don't seem to like that idea. Since asking for a government wage and spending freeze would likely be too much, I won't bother to ask for actual spending cuts. The so-called "leaders" of our age are proving to be among the most incompetent bunch in history (unless you buy the conspiracy side of the argument for "big government"), unable to manage affairs of state effectively.

The world will wait while Washington winces, whines and wails. That's unfortunate because people must move on towards an improved existence. It is the history of civilization and should not be short-circuited by failures of financial creations.

To replace the broken models of the past, new ideas must be developed .

Optimistic Investors Push Dow Past 9000

It's a new year, so let's all buy the stocks we sold for losses in 2008.

That seemed to be the prevailing mentality as Wall Street staged its third consecutive rally in a row, starting 2009 off with a veritable bang.

Of course, this kind of optimism is exactly what bears like, even more than bulls. The January Effect seems to be in full flower, with investors jumping in with abandon. Apparently, there's still far too many plungers out there willing to take risks on stocks - even following the worst year on Wall Street since the 1930s - for a realistic bottom to form.

That a real, enduring bottom will form at some later date is almost assured, unless President Obama turns out to be a miracle worker instead of a politician. His administration begins in just 18 days, and investors are encouraged that a change of parties and policies will produce prosperity.

While stocks scrambled up the charts on Friday, economic news was less-than-reassuring. The Institute for Supply Management (ISM) Manufacturing Index, a key measure of manufacturing strength or weakness, tumbled to 32.4% in December, following a reading of 36.2% in November. It was the lowest reading for this particular report since June 1980. The report included some nuggets of just how weak the manufacturing sector really is, including this:

"New orders have contracted for 13 consecutive months, and are at the lowest level on record going back to January 1948. Order backlogs have fallen to the lowest level since ISM began tracking the Backlog of Orders Index in January 1993. Manufacturers are reducing inventories and shutting down capacity to offset the slower rate of activity."

Despite that sobering bit of news, investors were undeterred from staking out positions.

Dow 9,034.69, +258.30 (2.94%)
NASDAQ 1,632.21, +55.18 (3.50%)
S&P 500 931.80, +28.55 (3.16%)
NYSE Composite 5,915.73, +158.68 (2.76%)

Another indication that the recent rally is unsustainable is the relatively low volume, which, for the past three sessions, including today's, were more in line with mid-Summer doldrums rather than an expanding market condition.

NYSE Volume 4,075,754,500
NASDAQ Volume 1,464,044,875

Advancing issues leaped ahead of decliners, 5084-1415. New lows outnumbered new highs, but by a very slim margin, 54-20. This indicates that the market is either headed for a long reversal rally or that this 3-day event is just about over. New highs have only surpassed new lows 4 or 5 times (on a day-to-day basis) in the last 14 months.

Commodities were mixed. Oil gained $1.74 per barrel, to $46.34. Gold lost $4.80, to $879.50. Silver gained 20 cents to $11.49.

It was a welcome relief rally for investors, who want to at least believe that the market cannot go down any more.

Did somebody say, "sucker rally?" We'll see in days and weeks ahead. Earnings for the 4th quarter will begin to flow to the street in three weeks and they're predicted to be short of expectations in a variety of industries, not the least of which will be retail.

It will be interesting to note the January Barometer, which is a highly accurate predictive tool based on the premise that whatever direction the S&P 500 ends the month is the direction for stocks the rest of the year.

The January Barometer was a highly useful predictor last year, when the S&P lost 90 points in January, presaging a 2008 total loss of 465 points.

Fed Makes January a Winner

S&P's 1.4% Move Gives January Barometer Watchers Hope

The Federal Open Market Committee (FOMC), met, deliberated and in the end, did nothing, which turned out to be highly favorable to investors. Keeping the key Fed funds rate at an historically-low 5.25, the Governors acted wisely while keeping a watchful eye on inflationary pressures.

Trading on the major indices following the release of the Fed report was nothing short of jubilant and moved the S&P 500 into healthy positive territory on the final day of the month. Since December 29, the final day of trading in 2006, the S&P 500 index has gained 20 points, good enough for a positive reading on the January Barometer of 1.4%.

Today's boost bodes well for stocks the remainder of the year. While the January Barometer is based on nothing more than hyperbole, it is still one of the most closely-watched indicators on Wall Street.

As reported here last week, the January Barometer has been accurate in predicting the full year 85% of the time since 1970. Whether or not it's a self-fulfilling prophecy (traders believe in it and act accordingly) is still an open question, but if you ask anyone in the business whether or not they'd like the market to be up in January, you'd likely get nearly unanimous consent.

The other big news of the day included the government's reading on the 4th quarter of 2006, saying that the economy grew at an annualized 3.5% (a rate of growth that's about as stable and non-inflationary as one could ask) and Google's (GOOG) quarterly report which was in line with analyst expectations, but sent the stock reeling in after-hours trading. After adding 7.18 during the regular session - pushing the price to an astounding 501.50 - the selling commenced with great vigor upon the in-line announcement.

Google admirers liken ordinary results to heresy, expecting nothing short of miracles from the #1 search company. As of 5:30, Google had given back all of the day's gains and then some, down 9.70. Expect Google to gap lower in the AM, though the valuation will still be expensive. The p/e ratio hovers around 60 at current price levels.

For the record, the Dow added 98 points, the NASDAQ was up 19, the S&P 500 gained 9.42.

Waiting for the Fed

The action on the US equity markets today was comparable to an amateur production of a Samuel Beckett play: minimalist, but with a certain impatience to it. Without any blockbuster earnings reports and no economic news of note, traders chose a wait-and-see approach as the Fed meets tomorrow and issues their declaration (most likely no change) on interest rates Wednesday.

Despite moderate volume, the major indices barely moved. The Dow gained 3.76, the NASDAQ added 5.60, while the S&P 500 lost 1.56 to close at 1420.62, barely ahead of the 2006 finish (1418.20). As I mentioned at the end of last week, unless there's a big rally or sell-off tomorrow or Wednesday, the January Barometer will not provide any direction going forward.

Since most markets are averse to indecision, the likely direction is down. There isn't enough good news and with earnings season closing quickly (2 weeks), there's going to be a dearth of news, leaving investors to their own wiles - usually not a good thing, "idle hands" and all that considered.

Stocks are valued pretty richly at present, posing opportunity for profit-taking at the least, outright fear of a crash at the worst. No stretch of imagination can perceive this market as cheap or reasonable.

The word a lot of analysts like to use is frothy, as in a heady mug of beer. And we all know what happens to excess froth. It either gets blown off the glass or oozes down the sides. Neither metaphor is particularly good for equity investments.

So, we wait. For nothing, for now.

Dow Powers to New Record, eBay Piles On

Thanks to oodles of cash and some better-than-expected earnings reports from a handful of companies, the Dow Jones Industrial Average cruised to a new closing high today of 12,621.77, putting the fears that January would be a downer of a month pretty much to rest.

By adding nearly 88 points today on top of Tuesday's 56-point gain, the Dow is a cool 148 points on the plus side for 2007. While that's only a 1.2% bump, it's likely to be enough to keep January positive, which is a huge emotional buffer for the markets. So long as companies keep reporting earnings close to in line or better than expectations, the month will end on a high note, portending good things for the rest of the year.

The so-called January barometer actually tracks the S&P 500, and, according to the highly-regarded Stock Trader's Almanac the adage, "As goes January, so goes the year," is usually on-the-money. According to a February 1, 2006 report by U.S. News and World Report's Paul J. Lim,

85 percent of the cases since 1970, a positive gain in the S&P 500 in January has led to a positive year for stocks

With the S&P up 22 points or roughly 1.5%, we seem to be in safe territory, bearing in mind that there are only 5 trading days left in the month.

If one was to take out the days of the January Effect - the last trading day of the year and the first week of trading in the new year - a period notorious for dumping stocks - we're in very, very good territory. That's because the S&P bottomed at 1409.71, roughly 8 1/2 points below last year's close. But, that's enough of beating a worn and nearly dead horse. Suffice it to say we're setting up for another solid year of gains on the markets.

After the close, auction behemoth eBay released 1st quarter results and stunned investors with a dazzling report. Profits were 24% higher than last year's same period. Net income rose to $346.5 million, a healthy gain from the $279.2 million in Q4 2006. The 25 cents per share was well above analyst estimates of 19 cents.

Shares were bid up 1.38 prior to the release and added another 3.93 in after-hours trading. That's almost an 18% gain in one day. Not bad. The beat goes on...