Wednesday, January 3, 2018

A frothy rally, but...

Mid-week market update: The stock market began the year by roaring out of the gate. This was not a big surprise. Rob Hanna at Quantifiable Edges tweeted on New Year's Eve that the market has rallied strongly when it closed at a 10-day low at the end of the year.

Though the sample size is small (N=4), past episodes has been stock prices advance for a minimum of four consecutive days before pausing.

Hanna followed that tweet with a post which observed that positive momentum on the first day of the year usually leads to follow through for the next two days (which would be tomorrow, or Thursday).

Another bullish seasonal sign come from Jeff Hirsch of Trader`s Almanac.
The first indicator to register a reading in January is the Santa Claus Rally. The seven-trading day period begins on the open on December 22 and ends with the close of trading on January 3. Normally, the SP 500 posts an average gain of 1.3%. The failure of stocks to rally during this time tends to precede bear markets or times when stocks could be purchased at lower prices later in the year.
The SPX returned 1.1% during the seven-day period, which is positive but below average. This is a preliminary sign which should be enough to get traders and investors excited about 2018.

What happens now? Can equities continue to rise after these seasonal tailwinds?

The full post can be found at our new site here.

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