Ok, that was a nice first week of the year! But, let's not get ahead of ourselves. Media likes to report statistics. It goes something like this: in the past __ years, when ________ happens, __% of the time the market does this! If you fill in the blanks, you could get something like: in the past 50 years, when the market has a strong first week, 80% of the time the market is up for the month of January. Then, you can get something like: in the past 80 years, when the market has a strong first month, 70% of the time the market is up for the year! Of course, I'm just throwing these numbers out to fill in the blanks. I'm just giving you some "random" examples.
Here's my take on this. First, throw out the statistics that go beyond 10 years. The world is changing so fast, things that drove the market are not the same things that are driving the market today. Technology and the internet is changing a lot of things. The stocks market does not operate the same way as it did 10 years ago. Second, don't let these statistics give you a mental bias on the market. Once you have a mental bias, your judgements may be clouded and they could prevent you from seeing what the market is telling you. Third, as a trader, you should not worry too much about what's going to happen for the year anyway; it's only the first week of trading!
Now, let's take a quick review of what happened last week. In last weekend's Market Forecast, I said,
"For the new week, earnings seacon is about to start. Good news coming
out of Europe will certainly help, but, we'll have to see how strongly
the buyers come back in. If SPX pushes above 1270 and catches its daily
upper BB, it could break out. Nasdaq will need a lot of help. It'll
first need to get above 2650."
Gee, the market reached those targets on the first day of trading! In fact, within the first "hour" of trading, Nasdaq went above 2660 and SPX went above 1280. That was nice to see. But, what happens when things pop up too fast? Well, sometimes they come back down fast; other times, they need some time to consolidate. It's kind of like when you eat a lot of food really fast, you might get a stomach ache and need to sit down for a while. This was what we got for the rest of the week. On Wednesday, the market retreated a bit, while we locked in some nice profits. Thursday saw more consolidation, with a quick drop in the morning. But, things recovered before the close. On Friday, the market experienced more range-bound trading to end just a bit lower.
We had a really nice week, with 2 triple-digit gainers from Ecstatic Plays, and solid winners from Happy Trading!
For the week, the Dow was up +142.36 points; SPX added +20.21 points; Nasdaq gained +64.92 points. Both oil and gold went up as well, with oil went above $101/barrel and gold going back above $1610/ounce. Tonight, at the time of this writing, Asian markets were mostly lower. China, however, was up solidly at +1.44%.
Here's where the US market stood after Friday's close:
SPX
SPX slid 3.25 points to close at 1277.81, below 1280. Its daily MAs and MACD were slightly higher.
Nasdaq
Nasdaq added +4.36 points to close at 2674.22, below 2680. Its daily MAs and MACD glided up.
Although the market got a big pop on Tuesday, both SPX and Nasdaq closed just below their respective breakout levels (SPX 1280; Nasdaq 2680). VIX did fall lower, but closed above 20. For the new week, the market may still need a couple of more days to consolidate. But, the market does appear to be on the verge of break higher. Above 1280, SPX could quickly run above 1300. Nasdaq could see a burst to test 2750 on a breakout. One good thing last week was that the financials were strong. Another thing was that although the dollar popped higher, the market held its ground. Biotechs were especially strong, as the sector index broke out.
Sector Watch
GLD (gold)
GLD bounced last week. But, the dollar looks like it could break higher. We'll have to see how gold responds to a even higher dollar. A soft support is at $155. Below that, we could see $150 tested.
XME (metals and mining)
XME was not very strong last week. It barely closed above its daily MAs. However, the MAs are pinching in together, which could mean that a big move is coming soon. If XME breaks higher, it'll be very bullish for the market. WLT is staying suspiciously weak. BTU and CLF are showing better signals. While CAT is strong, JOY is still weak. So, things are still neutral for metals and mining. We'll keep watching this sector.
XLF (financials)
XLF was strong last week and its daily MAs have developed a new bullish formation. First one since early November 2011!! MA and V have gone up too much, with V at all-time high. Last week, we saw M and V take a quick pullback. WFC, JPM, and BAC, on the other hand, broke out. GS stayed neutral, although it did go higher.
BTK (biotechs)
BTK has been a strong 3-week run. It broke out last week. REGN, DNDN, MDVN, BIIB all had strong moves last week. VRTX is becoming very interesting. HGSI can almost be traded like an option, being under $8!
Good night and HappyTrading! ™
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