Does the "January Effect" Predictor Still Work?

Posted by Patrick Ceresna on Dec 30, 2013 3:08:00 PM

In the past, the month of January has had a good track record in predicting the trend of the stock market for the upcoming calendar year. Through history the “January Effect” was a result of tax-loss selling which causes investors to sell their losing positions at the end of December or subsequently waiting until January to take their profits to defer the capital gains a further year. Let’s review the tendencies.

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Topics: Market Forecast, market outlook, S&P 500

Is the S&P500 Heading to 2000?

Posted by Patrick Ceresna on Nov 13, 2013 3:25:00 PM

This past weekend Barron’s had two articles discussing raised bullish price targets: “Will a Stock “Melt-Up” Really Solidify?” and “Lifting the Odds for a Market Melt-Up”.  This is just a sample of many of the new articles that the media is openly discussing. There are  a growing number of analysts that are raising targets for next year to the 2000 level on the S&P500. In spite of my repeated bearish concerns the market still continues to relentlessly advance. 

stock market roller coaster

So can we hit 2000 on the S&P500? The answer has to be yes because in the markets anything can happen, but the more important question is about how realistic or probable it is for it to happen. At the start of the year almost every bullish analyst on the street set targets of 1650-1750 on the upside and to date they have been correct. The problem is that bullish analysts cannot have targets that are below the current levels, which means the bullish analysts must all raise their targets even higher to justify holding their investments.  This does not necessarily always lead to a new fairy tale advance. 

No better example of that are Apple shares back in 2012.  In January 2012 Apple shares started the year around $400.00 a share. Most bullish analysts had set price targets in the $600-$700 range which represented a very bullish 50-75% advance.  To everyone’s delight the stock rocketed to $640.00 in just 4 months.  Over the subsequent 6 months every analyst rushed to set $800, $900 and $1,000 price targets for the stock.  To feed everyone’s euphoria, Apple proceeded to rise to $700.00 a share and everyone was certain that everything was going to be blue skies from there.  Yet it was from that moment that Apple began a significant bear market decline that seen it wipe out all gains back to $400.00 a share over the subsequent 9 months. 

With that in consideration, recognize that the S&P500 could advance to 2000 like all the super bull analysts are expecting but if Apple has any less to teach, it is that the market can only be at its highest levels when everyone is most bullish. We, on the other hand, will respect the trend but we will unmistakably remain skeptical of its sustainability and cautious of the risk of a market correction when everyone least expects it.


Levels to watch S&P500 December 2013 Futures:

The S&P 500 has now tested the 1770.00-1775.00 area three times and is attempting to retest it again today. This week’s trend will be decided off this level.  If the bulls can breakout the market to new highs, there are measured moves toward 1800.00 on the upside which could see bullishness into Friday’s November options expiration. Alternatively, if the bulls fail to make higher highs, a reversal and retest of the 1735.00-1740.00 would be possible. If at any point the market has a legitimate breakdown below 1735.00, it would open the window for the next bigger picture correction or crash.  We will remain neutral for a few more trading sessions to see if the market will show its hand for the next market move.

Market Breadth:

Ceresna Market Breadth Index: Sell Signal Alert
52 Week Mean Price of S&P500: 1587 (183 points below market) (201 point peak 2 weeks ago)
Volatility Index: 12.95% (Already near year highs)
Number of Stocks Making 52 Week Highs: 226 
(Year high 894 Jan 2nd
Number of Stocks Making 52 Week Lows: 30 (Year high 504 Jun 24th
Number of Stocks Above 50 Day Moving Average: 61.11% (Year high 89.54% Jan 22nd)

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Topics: s&p500, market outlook, Market Levels

Will the Market Crack at this Level?

Posted by Patrick Ceresna on Nov 8, 2013 12:24:00 PM

Anyone reading our blogs over the last week is not surprised that the market is taking a breather. A pullback was overdue and we identified that 1730.00-1740.00 area as a level that would very naturally be tested if the bulls failed to break the market out. So what happened in the last few days? The market corrected lower to the support and is now using the Jobs numbers as short term momentum back toward the highs. Should we be concerned or on high alert?

Things supporting bulls:
  • The bull trend remains intact
  • Bonds are correcting as interest rates rise (short term)
Things supporting bears:
  • The S&P500 traded over 200 S&P points above its mean indicating that the market is overextended on the upside.
  • The leadership stocks (Tesla, Facebook, financials) have stopped advancing in spite of the index being at its highs.
  • Market sentiment is very complacent. 
  • Breadth indicators have rolled to give sell signals. 
So should we be on high alert? In the big picture, yes we should be.  On the short-term we have to have a more neutral stance as the market can still squeeze ambitious shorts (artificial buying). Today bonds rapidly declined (interest rates up) on the release of the Jobs numbers.  This defuses the immediate risk but does not solve the problem.  The best way to describe it is that we are standing at the bottom of a mountain looking at a rather large ridge of snow that if disturbed, could trigger an avalanche that would bury us all. Rocks are being thrown at the ridge, but surprisingly it does not give out. With everyone watching rock after rock being thrown, we start to believe that the rock will not be able to start the avalanche based solely on the evidence that it has not happened yet.  That breeds complacency.  The saying goes- a boxer does not get knocked out from the punch he expects. So complacently put your guard down, because a robust stock market rally like this can’t end badly, right?       
market conditions market breadth index 
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Topics: s&p500, S&P, market outlook, stock market, Market Levels

Market Forecast - S&P500 Crash Alert and Market Outlook Video

Posted by Patrick Ceresna on Aug 19, 2013 8:45:00 AM

CRASH ALERT: When we are in crash alert, it do not guarantee a crash but simply us observing that we are in a market state where all the criteria for a crash is there. The checklist was posted in last week’s blog, click to read.

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Topics: Market Forecast, s&p500, Market Crash, market outlook

Market Forecast - August 8, 2013

Posted by Patrick Ceresna on Aug 8, 2013 7:43:00 AM

Yesterday’s selling established a low on the S&P500 around 1680.00 before the bounce started.  The bulls are still in control, but we will get some valuable information during this advance.  It is going to be when the bulls fail to make higher highs during the advances that we will be on the lookout for topping formations. Will the bulls be able to beat Monday’s 1705.00 highs on the futures?  If you are concerned, this is a healthy level to be taking some profits off the table and raise some cash.

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Topics: Market Forecast, Gold, S&P, market outlook

Weekly Market Forecast for the Active Investor - July 22, 2013

Posted by Jason Ayres on Jul 22, 2013 7:03:00 PM

Canadian and U.S. investors have been enjoying a bullish ride as both stock markets have discounted any underlying concerns and continued the uptrend.  Most notably the Toronto market has staged a neck wrenching snap back led largely by Canadian banks.  Of notable importance is the rally in oil which has yet to look back.  Precious metals have also finally come off of their lows.  While the primary trend remains down, golds break above 1300 is offering gold bugs a glimmer of hope.  We suspect a retracement higher after such a substantial sell off however there are several resistance levels in place that will hold the bulls back.  Bonds continue to drift higher, but are subject to headline risks as are the precious metals.  For important insight into key support and resistance levels and possible turning points, watch this weeks Market Forecast:

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Topics: support and resistance, learn to trade the markets, market outlook

Trade the Markets with our Weekly Outlook for May 13, 2013

Posted by Jason Ayres on May 13, 2013 1:25:00 PM

Monday Market Outlook -  May 13, 2013

Stocks, bonds, currencies and commodities continue to chop about with very little commitment on the short term charts. Watch our Weekly Outlook to see where we believe the turning points are and what to watch for as signals to take action as you trade and invest in today's uncertain environment. BE SURE TO CLICK READ MORE TO ACCESS TODAY'S VIDEO.
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Topics: market outlook, trade the markets, investor outlook

Trade the Markets with our Weekly Outlook for May 6, 2013

Posted by Jason Ayres on May 6, 2013 12:07:00 PM

Monday Brief

Last week was challenging as traders and investors waited to see what the Feds in the U.S. and the ECB in Europe had to say about the state of the markets and their open market operations.  While the Feds stayed the course, the ECB lowered interest rates slightly in an attempt to stimulate the European economy.  While this move sent the U.S. Dollar higher the stock market was relatively unimpressed...until the monthly jobs numbers on Friday.  The surprise numbers suggested that the economy improved in April and more jobs were created.  This resulted in a substantial swing to the upside for the various U.S. stock exchanges. Even the Canadian stock market has been retracing to the upside as resource and bank stocks have shown some resilience as of late.  It should be noted that the TSX/S&P Composite is still off it's highs and hitting a strong resistance.  As for the forecast for stocks in the U.S., the question is whether the move was partially a result of a short squeeze in which case that reflects more of a fake out instead of a buy signal.  One could use the simultaneous sell of in bonds as a possible indication of a flight to riskier assets however, the question remains how much of the sell off was a result of short term bond traders locking in profits, cutting losses or decreasing position sizes to reduce risk? So it remains to be seen whether the smart money will use this latest rally to "sell in May and go away" or if there is something real here.  For a more in depth overview of our expectations for stocks, commodities, currencies and bonds watch our short video an feel free to give us your thoughts below. BE SURE TO CLICK "READ MORE" TO ACCESS THE VIDEO
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Topics: learn to trade the markets, market outlook, trade the markets

Trade the Markets with our Weekly Outlook for April 15, 2013

Posted by Jason Ayres on Apr 15, 2013 9:54:00 PM

Click "Read More" to view the video

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Topics: support and resistance, market outlook, trade the markets

Weekly Market Outlook for The Educated Investor - March 4th, 2013

Posted by Jason Ayres on Mar 5, 2013 8:21:00 AM

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Topics: Gold, oil, euro, USD, dollar, S&P, Dow, Nasdaq, educated investor, weekly market outlook, market outlook, derivatives, derivatives market specialist, chartered market techinician, support, resistance, support & resistance, trend, trend in force

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