I wanted to let 2017 market behavior “shape up” before my first post of the year, we have now reached that point as I type this in the late evening hours of Jan-12. Bottom Line Up Front (shout out to A.V.T.) – I remain 100% S-Fund. The markets have traded for approximately two weeks now…. as I discuss recent market behavior and other events, keep in mind the theory known as the “January Barometer” – an indicator which asserts that January sets the tone for the rest of the year. Like such topics as Extraterrestrial life, global warming, fracking, and other interesting things, this theory is not without naysayers and critics. However, me, I am a believer in this indicator.
Soon after the first trading day of the year (Jan-2), the SP 500, my benchmark market-health index, made an All-Time-High on Jan-6, reaching 2282.10. Also, some market confirmation behavior has been underway, confirming my belief that the stock markets are beginning a new Bull Phase (commenced in November): this behavior being the increase in the stock indexes, and a decrease in the price of Gold. Gold is typically the worldwide safe haven investment, our G-Fund and the dollar bills in our pockets are ultimately backed by Gold. As such, Gold in almost all cases will rise when threats are perceived to exist to stock market investments, and the reverse will happen when the majority feel that stocks are a safe place for their money. Gold indeed has risen since Jan-2, while the stock markets have remained mostly flat, versus gone down. So the recent rise in Gold is not worrisome yet. Lets take a look at some charts:
Evident above, is the “confirmation” Phenomenon. Furthermore, oft discussed here, is the fact that crude oil actually climbs in bull stock markets. Contrary to conventional wisdom, higher crude oil prices (to a point, we are not talking $300 a barrel…) reflect a well-functioning economy. My own research reflects that $55-$65 a barrel is the “ideal” price, one that will not kill the retail consumer at the fuel pump, and will still allow profits to the big oil companies who employ thousands of employees worldwide. Lets take a look at the Crude Oil chart:
So, from a technical analysis view, all the indicators and signals are reflecting that a bull market is underway. An interesting observation: historically, small caps always outperform everything else, in a new bull market. That is happening now, at least in regards to United States stocks. The S-Fund, and other small cap indexes, are outperforming. So throw all my charts into the garbage and you have additional indicators that reflect a bull market is in the works. Note that very recently the I-Fund has started to performed very well, however I am still a little skittish about international stocks. I may change my mind in the next 30-90 days though.
A negative observation along with all of this, one that I cannot overlook, especially since volume action is very important to me, is the fact that volume has been running at average, or below average, on the SP 500 index, since Jan-2. Why, I do not know (I can only read the charts…) but it is possible that market participants are waiting for the 2017 Presidential Inauguration (Jan-20) prior to additional investment. I anticipate a renewal of the uptrend after Jan-20. I saw “renewal” because the markets have been mostly flat so far, bound by an SP 500 support level of 2250, and overhead resistance of 2280:
On the above chart, I deleted an outlier-day, Dec-30, which had some weird odd behavior, hitting a low of 2233.62 that day. One day does not determine the market’s health, with Dec-30 being a Friday, and the last trading day of 2016, possibly the traders on Wall Street (very few of them— that day was low volume) were getting a little carried away with their Jim Cramer sell-sell-sell buttons. I removed that day from my analysis, and consider 2250/2280 to be important levels to watch. With the exception of big box retail and mall-based stores, the US economy appears to be doing fine. With Mr. Trump’s expected tax cuts, regulation reduction, and focus on US jobs, the economy should continue to improve into 2017.
On that note, I will sign off. I remain 100% S-fund, however depending on how the next 30-90 days go, I may consider modifying my allocations.
Until then, thank you for reading and talk to you soon…