As January Goes… so goes the rest of the year. That is just one of three anecdotes this week, the other two being the end of the Santa Claus rally and the first five days of January (so goes the month). Wednesday was the end of the Santa Claus rally and it appeared to be a successful one, up about 2% on the SPX 500, while the first five days of January (not complete, Monday Jan 9 will be the end) is up nearly that much.
Mind you, a great deal of the gains came on the gap higher following the three day holiday. In fact, the markets barely moved from that close until the end of the week. As we embark on another earnings season, the price action becomes that much more anxious.
Speaking of earnings, we’ll start to see how the 4th quarter looked starting next week. If the recent sentiment is any indication we’re likely to see some very good results but with the usual disappointments. I believe estimates to be far to low (bar set easy).
This could be the floor for stocks, at least through the first quarter. Perhaps there is some separation of the US from Europe (oh, I don’t really believe that…and neither should you). With 2011 in the rear-view mirror it’s time to see stock prices catch up company performance.
Charts are starting to become more constructive. The technical picture is improving as well. One thing to notice is the separation of leaders and laggards. This is a positive development. Last year saw the markets correlate highly with stocks, rendering stock picking a useless exercise.
Remember those days last year when the market would tank and it seemed everything went with it? Today we see some leaders such as retail, restaurants, rails, industrials, select energy…while some laggards include coal, steel, other energy, some financials and technology. A bifurcated market is okay to have, then we rotate as time moves on (as long as the money stays in equities).
Last quarter was pretty good for us trading through earnings, and I plan to have some trade ideas on the website through the entire season
Bob Lang is the Founder of option trading newsletter Explosive Options