Market Commentary

Year-to-Date, the Dow is UP for the year. It has been a long time since you've heard that phrase.  There was no point in 2008 when the Dow was up for the year (at the close of a trading day).  According to Bespoke, since 1900, 2008 was only the fourth year where the Dow (1910, 1962, and 1977) never had a single day where it closed up for the year.  So, as of now, we officially suck less than last year.

Last week the major market
averages moved above their 50-day averages for the first time since late August.The Dow is over 9,000.

The January Barometer:     

Does a market rally in January imply anything for the rest of the trading year?  "As goes January, so goes the year." This particular phenomenon is what is referred to as the January Barometer.  

Is it true?  I don't know; but it is fun to examine.

Many reputable services report the January Barometer's recent-history success rate at around 75%; so it is worth watching.

I was going through some research and found this chart from Chart of the Day.  It illustrates that the S&P 500 has performed much better (on average) during the months following a January gain.  The chart is a few years old, but recent years have followed this trend.

John Murphy has a slightly different perspective; he says that what the market does during the first week of the new year often gives a clue about direction for the remainder of the year.

Murphy cites the Stock Trader's Almanac, "S&P gains during January's first five trading days preceded full-year gains 86% of the time". The predictive ability of the month of January is nearly as impressive. "The January Barometer predicts the year's course with a .741 batting average. 12 of the last 14 post-election years followed January's direction" (Almanac).

The market dropped during the first week and month of 2008 and correctly warned of a bad year ahead. We had a good start to that first week of January here in 2009.  Let's hope it keeps up.

Here are a few of the posts I found interesting this week:

• A sober look at markets in 2008 here and around the world. (Investment Postcards)
• If this is like 1932, there will be hope as well as pain. (Financial Times and Naked Capitalism)
• Fortune's 21 Dumbest Business Decisions of the Year. (Fortune)
• Manufacturers suffer record declines in activity. (Financial Times)
• Lots of brands went out of business in 2008, will the trend continue? (Lindzon)
• Here's an eclectic list of the Best Financial Blog Posts of the Year. (2008 List and 2007 List)

And, a little bit extra:

• Twitter users grew 6X last year, and 10X more is expected in 2009. (Financial Times)
• The day Microsoft Zune stayed still; caused by a leap-year glitch. (NYTimes)
• Apple OS market share tops 10% as MS drops (TUAW)

Year-to-Date, the Dow is UP for the year. It has been a long time since you've heard that phrase.  There was no point in 2008 when the Dow was up for the year (at the close of a trading day).  According to Bespoke, since 1900, 2008 was only the fourth year where the Dow (1910, 1962, and 1977) never had a single day where it closed up for the year.  So, as of now, we officially suck less than last year.

Last week the major market
averages moved above their 50-day averages for the first time since late August.The Dow is over 9,000.

The January Barometer:     

Does a market rally in January imply anything for the rest of the trading year?  "As goes January, so goes the year." This particular phenomenon is what is referred to as the January Barometer.  

Is it true?  I don't know; but it is fun to examine.

Many reputable services report the January Barometer's recent-history success rate at around 75%; so it is worth watching.

I was going through some research and found this chart from Chart of the Day.  It illustrates that the S&P 500 has performed much better (on average) during the months following a January gain.  The chart is a few years old, but recent years have followed this trend.

John Murphy has a slightly different perspective; he says that what the market does during the first week of the new year often gives a clue about direction for the remainder of the year.

Murphy cites the Stock Trader's Almanac, "S&P gains during January's first five trading days preceded full-year gains 86% of the time". The predictive ability of the month of January is nearly as impressive. "The January Barometer predicts the year's course with a .741 batting average. 12 of the last 14 post-election years followed January's direction" (Almanac).

The market dropped during the first week and month of 2008 and correctly warned of a bad year ahead. We had a good start to that first week of January here in 2009.  Let's hope it keeps up.

Here are a few of the posts I found interesting this week:

• A sober look at markets in 2008 here and around the world. (Investment Postcards)
• If this is like 1932, there will be hope as well as pain. (Financial Times and Naked Capitalism)
• Fortune's 21 Dumbest Business Decisions of the Year. (Fortune)
• Manufacturers suffer record declines in activity. (Financial Times)
• Lots of brands went out of business in 2008, will the trend continue? (Lindzon)
• Here's an eclectic list of the Best Financial Blog Posts of the Year. (2008 List and 2007 List)

And, a little bit extra:

• Twitter users grew 6X last year, and 10X more is expected in 2009. (Financial Times)
• The day Microsoft Zune stayed still; caused by a leap-year glitch. (NYTimes)
• Apple OS market share tops 10% as MS drops (TUAW)

This week I will keep the commentary light, just like the trading volume has been.  Also, I put together a list of posts that I found interesting. 

Quantitative Easing:  Now that the Fed has effectively cut the target lending rate to zero, it only has one more weapon in its arsenal – Quantitative Easing. Here is an easily understood video explaining this.

Quantitative easing from Marketplace on Vimeo.

Here are a few of the posts I found interesting this week:

• For stores, a very un-merry Christmas. (CNN)
• Amazon had a happy holiday season. (BizJournals.com) and TechCrunch)
• Turn-about is fair play; Russian Professor Predicts End of USA (WSJ)
• Oil jumps above $39 as Israel-Gaza conflict widens. (Marketplace)
• Out With the Old, because Creative Destruction made it obsolete. (Lindzon)

And, a little bit extra:

• Is this the next hot item?  Burger King Cologne Sold-Out. (Reuters)
• Are computer operating systems becoming extinct? (InfoWorld)
• Do you still read books?  Electronic Book Readers are getting more popular. (NYTimes)
• This is Shaquille O'Neal; This is the Real Shaquille O'Neal on Twitter.  (NYTimes and Twitter)
• Will Cow Flatulence Be Taxed to Combat Global Warming? (TheWeek)
• Bronx Mowgli Wentz, a name for a rock star or senator? (Fox)

This week I will keep the commentary light, just like the trading volume has been.  Also, I put together a list of posts that I found interesting. 

Quantitative Easing:  Now that the Fed has effectively cut the target lending rate to zero, it only has one more weapon in its arsenal – Quantitative Easing. Here is an easily understood video explaining this.

Quantitative easing from Marketplace on Vimeo.

Here are a few of the posts I found interesting this week:

• For stores, a very un-merry Christmas. (CNN)
• Amazon had a happy holiday season. (BizJournals.com) and TechCrunch)
• Turn-about is fair play; Russian Professor Predicts End of USA (WSJ)
• Oil jumps above $39 as Israel-Gaza conflict widens. (Marketplace)
• Out With the Old, because Creative Destruction made it obsolete. (Lindzon)

And, a little bit extra:

• Is this the next hot item?  Burger King Cologne Sold-Out. (Reuters)
• Are computer operating systems becoming extinct? (InfoWorld)
• Do you still read books?  Electronic Book Readers are getting more popular. (NYTimes)
• This is Shaquille O'Neal; This is the Real Shaquille O'Neal on Twitter.  (NYTimes and Twitter)
• Will Cow Flatulence Be Taxed to Combat Global Warming? (TheWeek)
• Bronx Mowgli Wentz, a name for a rock star or senator? (Fox)

The Federal Reserve decided to drop their target Fed Funds rate to an all-time record of 0.00% to 0.25%.

This chart, from Bill Luby's Vix and More,  highlights the daily effective federal funds rate, which is a volume-weighted average of rates on trades arranged by major brokers.  It puts things in perspective, doesn't it?

Not surprisingly, last Friday’s effective Fed Funds rate of 0.11% is a record low.  In contrast, the record high of 22.36% dates back to July 22, 1981. The average Fed Funds rate since 1954 is 5.62%.

People Are Less Scared.

Something else going down is the VIX, which is now down more than 50% from its highs.  The VIX looks out 30 days into the future and captures “event volatility” associated with events that are expected to occur in the next 30 days. These include Fed meetings, important economic data releases (employment report, consumer prices, retail sales, durable goods orders, GDP, etc.), earnings from bellwether stocks, even hurricanes, geopolitical crises and other events which can expect to cast a shadow over the course of the next 30 days.

As shown above, the VIX recently broke below its November lows and is currently resting just above 40.

The VIX typically goes up when the market goes down, but even on days when the market has declined this week, the VIX has gone down as well.  That means investors are feeling a lot less fear.

What about the Government, though?  If they are so confident, why continue to print money?

What's a Few Trillion Among Friends?

Since the economic-stimulus package in February, the government has offered more than a dozen multibillion-dollar rescue packages for a variety of industries endangered by the financial chaos and the recession. The magnitude of even one of these mega-bailouts is hard enough to grasp. The following Slate visualization attempts to put the magnitude of these rescue packages in perspective.

Here are a few other items that caught my eye this week.

• Is it a Bail-Out or Smart Economics? (Dash of Insight)
• Sy Harding Argues that Government Responses Will Limit Recession. (Financial Sense)
• Money flow up sharply as S&P holds 50-day Moving Average. (Fallond)
• Biggest 6-Day Decline Ever for the Dollar. (Bespoke)

The Federal Reserve decided to drop their target Fed Funds rate to an all-time record of 0.00% to 0.25%.

This chart, from Bill Luby's Vix and More,  highlights the daily effective federal funds rate, which is a volume-weighted average of rates on trades arranged by major brokers.  It puts things in perspective, doesn't it?

Not surprisingly, last Friday’s effective Fed Funds rate of 0.11% is a record low.  In contrast, the record high of 22.36% dates back to July 22, 1981. The average Fed Funds rate since 1954 is 5.62%.

People Are Less Scared.

Something else going down is the VIX, which is now down more than 50% from its highs.  The VIX looks out 30 days into the future and captures “event volatility” associated with events that are expected to occur in the next 30 days. These include Fed meetings, important economic data releases (employment report, consumer prices, retail sales, durable goods orders, GDP, etc.), earnings from bellwether stocks, even hurricanes, geopolitical crises and other events which can expect to cast a shadow over the course of the next 30 days.

As shown above, the VIX recently broke below its November lows and is currently resting just above 40.

The VIX typically goes up when the market goes down, but even on days when the market has declined this week, the VIX has gone down as well.  That means investors are feeling a lot less fear.

What about the Government, though?  If they are so confident, why continue to print money?

What's a Few Trillion Among Friends?

Since the economic-stimulus package in February, the government has offered more than a dozen multibillion-dollar rescue packages for a variety of industries endangered by the financial chaos and the recession. The magnitude of even one of these mega-bailouts is hard enough to grasp. The following Slate visualization attempts to put the magnitude of these rescue packages in perspective.

Here are a few other items that caught my eye this week.

• Is it a Bail-Out or Smart Economics? (Dash of Insight)
• Sy Harding Argues that Government Responses Will Limit Recession. (Financial Sense)
• Money flow up sharply as S&P holds 50-day Moving Average. (Fallond)
• Biggest 6-Day Decline Ever for the Dollar. (Bespoke)

Last Monday the news of the day seemed to be that the U.S. markets rallied because Obama committed to spend money on infrastructure.  I saw the same story on Bloomberg, CNBC, CNN, and pretty much everywhere I looked.  On the other hand, a quick check of the indices told me that most markets around the globe also were up between 4 and 10% that day.  Does that mean that Russia, Italy, and the Asian markets all rallied because Obama said that he was going to spend money on the U.S., or is it possible that some other catalyst caused markets to raise?

The point is that the news gives many a false sense of certainty.  There is an old trading adage: It isn't the news that matters … What matters is the reaction to the news.  And recently I sense that people are getting tired of the choppiness and are starting to buy again, even on bad news.

Bad News?  How about headline-making scandals?   First, the Governor of Illinois tried to sell his influence, and even the Senate seat vacated by President-Elect Obama. Second, Bernie Madoff, a former Chairman of NASDAQ, was arrested and charged with fraud in a $50 billion 'Ponzi-scheme' swindle of investors.  Third, we had the whole auto industry bail-out question.

Still, markets went up, and somehow fear is subsiding.  Will we see a Santa Claus Rally?  From my perspective, a downside correction and successful re-test would be more constructive here.  So would better volume and less volatility.  But beggars can't be choosers; and we've had a 20% rally off the lows.

Nature or Nurture: 

After watching the Government bail-out financial companies, the auto industry seems to have learned a trick, or two. To me, this video represents a very real part of our economic ecosystem.  The swan has been conditioned to pull the rope to request a handout.  When nothing happens, the swan keeps ringing the bell … and is ultimately rewarded.  Question: is the swan trained, or did the swans train their handlers?

The direct link to the video is here. 

Also, here are a few other posts that caught my eye this week:

• Henry Blodget on Why Wall Street Always Blows It (The Atlantic).
• Are You Buying Now That Blood Is In the Streets?  Some Scary Predictions (Fortune).
• Human Interest Twist to the Recent Financial Crisis in "Profiles in Panic" (Vanity Fair).

Last Monday the news of the day seemed to be that the U.S. markets rallied because Obama committed to spend money on infrastructure.  I saw the same story on Bloomberg, CNBC, CNN, and pretty much everywhere I looked.  On the other hand, a quick check of the indices told me that most markets around the globe also were up between 4 and 10% that day.  Does that mean that Russia, Italy, and the Asian markets all rallied because Obama said that he was going to spend money on the U.S., or is it possible that some other catalyst caused markets to raise?

The point is that the news gives many a false sense of certainty.  There is an old trading adage: It isn't the news that matters … What matters is the reaction to the news.  And recently I sense that people are getting tired of the choppiness and are starting to buy again, even on bad news.

Bad News?  How about headline-making scandals?   First, the Governor of Illinois tried to sell his influence, and even the Senate seat vacated by President-Elect Obama. Second, Bernie Madoff, a former Chairman of NASDAQ, was arrested and charged with fraud in a $50 billion 'Ponzi-scheme' swindle of investors.  Third, we had the whole auto industry bail-out question.

Still, markets went up, and somehow fear is subsiding.  Will we see a Santa Claus Rally?  From my perspective, a downside correction and successful re-test would be more constructive here.  So would better volume and less volatility.  But beggars can't be choosers; and we've had a 20% rally off the lows.

Nature or Nurture: 

After watching the Government bail-out financial companies, the auto industry seems to have learned a trick, or two. To me, this video represents a very real part of our economic ecosystem.  The swan has been conditioned to pull the rope to request a handout.  When nothing happens, the swan keeps ringing the bell … and is ultimately rewarded.  Question: is the swan trained, or did the swans train their handlers?

The direct link to the video is here. 

Also, here are a few other posts that caught my eye this week:

• Henry Blodget on Why Wall Street Always Blows It (The Atlantic).
• Are You Buying Now That Blood Is In the Streets?  Some Scary Predictions (Fortune).
• Human Interest Twist to the Recent Financial Crisis in "Profiles in Panic" (Vanity Fair).