Is this rally for real?

[Notmuchlonger]

So much for the January effect. Hehe.

-CC

What happened in 2009?

 

[CCdaCE]

'09 sucked too. Have to go back to '07 to get a positive return in Jan for the DOW (and it wasn't much).

2009 -6.0

2008 -4.66

2007 +1.17

2006 +0.33

Might be a day off, here or there, but you get the idea.

-CC

 

[NW-Bound]

Would anyone volunteer to look even further back to see if this January effect was ever true? Could it be that once too many knew about it, it stopped working.

I notice that in 2009 and this year, the market rallied the first week or two, then faded. So it is now only the "first-half of January effect".

Soon, it will be just the first two days of January, then only the first hour of trading!

 

[audreyh1]

From what I have read, it's true 2 out of 3 times. That's better than 50% which is considered good enough.......

Audrey

 

[CCdaCE]

I think you're exactly right NW-Bound. It was true at one point, then it stopped working. I recall seeing something on M*/Diehards/Bogleheads that it was true in the ... 80's?.

Here's a link.

-CC

 

[Running_Man]

I put far more stock in the 43 percent drop in the Bulk Dry Shipping index from November. Hardly anything has been commented on in the press about the huge decline since the November recovery high in this index and it has led all the stock market moves for years now and is not looking very pretty.

 

[ziggy29]

I put far more stock in the 43 percent drop in the Bulk Dry Shipping index from November. Hardly anything has been commented on in the press about the huge decline since the November recovery high in this index and it has led all the stock market moves for years now and is not looking very pretty.

Looking more and more like a double dip to me unless the jobs --sustainable private sector jobs, not stimulus jobs -- magically start appearing to restore consumer confidence. And frankly I don't see a driver for it.

 

[FinanceDude]

It's a bear trap...........

 

[NW-Bound]

Cisco reported good earnings yesterday. Chambers also sounded upbeat, saying he was looking to hire a few thousands. Some semiconductor equipment companies also raised guidance. Then, today the market was taken down by the jobless claim being a bit worse than expected.

Thumbs up? Down? "Buy, buy, buy" or sell to diversify into lead (bullets)? Heh heh heh... I know what Uncle Mick is gonna say.

 

[NW-Bound]

Wow! What a reversal today when the Dow plunged more than 150 points, then recovered. I guess the market decided that the problem with Greece, Portugal, and Spain might be overblown.

I have been w*rking, and only took a peek every so often at the market. I don't day trade, in fact have not sold anything, but just got to know what is going on.

Caterpillar and GE are hiring. Factories added 11,000 jobs in January. Average work week is at 40 hours 48 minutes and over-time averaged 3 hours 30 minutes, reaching levels not seen since mid 2008, according to a Web site.

What not to like? I have more work now than I need. Got two projects going, and they want me to join in a 3rd one. How am I going to find the time to RV? Well, DW is still tied up with caring for FIL, so I'll just have to make more money.

 

[FUEGO]

Our small engineering company now has a 5 month backlog. For those that weren't laid off at least. Maybe not a record but certainly close to it from my 6 years with them.

Hiring and reinstatement of our former salaries can't be far off.

 

[audreyh1]

The folks on the T/A thread at the Morningstar Fidelity Forum think that the PPT (plunge-protection-team) intervened at 3:00 pm by buying futures.

I also read a rumor that at 3 pm a rumor came out that some agreement had been reached to help Greece, and that this rumor caused a lot of shorts to cover.

The fact that commodities have dropped during a "sovereign debt crisis" indicates to a lot of folks that part of what is happening is the carry trade unwind. Meaning that the investors borrowing cheap dollars to chase hotter investments have had to reverse those trades due to the dollar strengthening.

The last 3 week selloff was definitely some big money (hedge and/or mutual funds) getting out, for whatever reason (i.e. not necessarily a reflection of fundamentals). Sure, the market may have run up too far to fast, but a pull back this quick seems a bit off right after fantastic company earnings results. I mean, the company earnings have been absolutely outrageously fantastic - way above any whisper numbers. To be met by such vicious selling - that is very unusual.

I also notice that the weakness seemed to start around Jan 15 when the Chinese took steps to slow their economy - that may have caused some big investors to get more defensive.

Whatever - this kind of situation indicates to me that at the moment the market is being buffeted by forces that are not closely tied with fundamentals, and that it will eventually work itself out. If, in the meantime, we get a good 10% correction on the S&P 500 that seems like a good thing for a stronger market. We got pretty close to reaching that 10% from recent peak today.

Audrey

 

[clifp]

It seems to me that market is acting in fairly normal fashion (buying on rumors back in Dec, better than expected earnings, and economic data) and selling on fact a good earnings season. A 10% correction is almost certainly a good thing after the strong 2009.

If we assume the market is a year ahead of the economy, my concern is I am not sure Jan 2011 economy will support a Dow 10,000 market. I think I am saying the market is still ahead of itself.

 

[audreyh1]

What is really funny about days like today is that it shows how nonsensical the financial press daily "reasons" for market action are:

Up until 3 pm - "Markets plunge on disappointment with jobs numbers"
After 3 pm - "Market rallies on improved jobs numbers"

(Those are hypothetical headlines above - but you read stuff like this all the time).

Audrey

 

[Zathras]

News I heard was consumer credit numbers came out much better than expected.

 

[ziggy29]

News I heard was consumer credit numbers came out much better than expected.

Which is the paradox in trying to recover: without more robust spending we can't pull out of the recessionary, jobless mess. But on the other hand, too much debt is a big part of what got us here...

 

[NW-Bound]

The consumer credit still declined in last quarter. It just declined less than expected. So, it was considered good.

 

[ziggy29]

The consumer credit still declined in last quarter. It just declined less than expected. So, it was considered good.

Agreed. I'm just saying it's funny that "more debt than expected" is a positive to the market when this post-bubble recession and near meltdown was largely caused by too much debt and easy credit.

 

[NW-Bound]

We don't want "too much of a good thing"?

 

[Steve O]

Here's a good one on the PPT, If you look at the date and compare what was said then to now not much has really changed

It was crazy watching the market rise after 3:00 yesterday

It was also entertaining watching the CNBC gang trying to explain it

http://www.marketoracle.co.uk/Article464.html

 

[W2R]

What is really funny about days like today is that it shows how nonsensical the financial press daily "reasons" for market action are:

Up until 3 pm - "Markets plunge on disappointment with jobs numbers"
After 3 pm - "Market rallies on improved jobs numbers"

(Those are hypothetical headlines above - but you read stuff like this all the time).

Audrey

I think it is hilarious, too. It feeds the yearning to find predictability in the market. I guess we're supposed to think that if we read/listen to that financial news source, somehow we will magically be able to know what the market is going to do consistently in advance, instead of accepting the fact that sometimes we just don't know.

If we did know, we'd all be much wealthier than we are at present and probably half of us would be putting out newsletters.

 

[Gone4Good]

The folks on the T/A thread at the Morningstar Fidelity Forum think that the PPT (plunge-protection-team) intervened at 3:00 pm by buying futures.

Yup, I heard Elvis gave the green light from his secret location in Area 51.

Alternatively, with volatility so high there was a lot of short covering as traders wanted to flatten their books heading into a weekend. This is pretty typical with high vol and a lot of uncertainty. Nobody wants to get caught leaning the wrong way if news comes out on Saturday that Greece is getting bailed out, for example.

But the PPT makes sense too.

 

[Gone4Good]

Sure, the market may have run up too far to fast, but a pull back this quick seems a bit off right after fantastic company earnings results. I mean, the company earnings have been absolutely outrageously fantastic - way above any whisper numbers. To be met by such vicious selling - that is very unusual.

For sure. But I think Greece reminded everyone that the world is still a very risky place. Whatever recovery we're seeing now (as evidenced by strong corporate earnings) could be undone by sovereign austerity or, possibly, default. You also get the feeling that the bear raiders have turned their attention on Greece at the moment, which is a pretty scary thought. If they are successful with Greece, they'll move on to Portugal, Ireland, etc. I can certainly see a flight to safety being warranted until this is beaten back.

But if it is, and earnings continue to come in even "as expected" for the rest of the year, we're looking at an S&P trading less than 14x this year's earnings. Which folks will consider cheap if all of these other issues don't turn into something major.

 

[W2R]

The folks on the T/A thread at the Morningstar Fidelity Forum think that the PPT (plunge-protection-team) intervened at 3:00 pm by buying futures.

I also read a rumor that at 3 pm a rumor came out that some agreement had been reached to help Greece, and that this rumor caused a lot of shorts to cover.

Either sounds logical and the resulting effect on the market would be the same either way.

Whatever - this kind of situation indicates to me that at the moment the market is being buffeted by forces that are not closely tied with fundamentals, and that it will eventually work itself out.

Yes, I think that is true and that is about as much as I feel sure of right now.

If, in the meantime, we get a good 10% correction on the S&P 500 that seems like a good thing for a stronger market. We got pretty close to reaching that 10% from recent peak today.

Audrey

Personally I am hoping it goes down just a wee little bit further or at least stays where it is for a few days, since I am on the verge of buying (nothing drastic, just a few tweaks according my asset allocation plan, naturally). I'll wait and see if the market skyrockets upwards Monday morning and if not, I'm pulling the trigger. I know, market timing is dumb but this is only partial market timing I guess...

 

[ziggy29]

Personally I am hoping it goes down just a wee little bit further or at least stays where it is for a few days, since I am on the verge of buying (nothing drastic, just a few tweaks according my asset allocation plan, naturally). I'll wait and see if the market skyrockets upwards Monday morning and if not, I'm pulling the trigger. I know, market timing is dumb but this is only partial market timing I guess...

To me, not all so-called "market timing" is created equal. To me, the type of market timing which tries to guess short-term moves in the market and darts in and out of stocks becomes indistinguishable from going to Vegas.

But I do think there may be some merit in using an "adjustable asset allocation" model based roughly on market valuations. Yes, in the short term if you reduce your allocation to equities in a frothy market you may lose some near-term gains if momentum keeps going, but looking at history the worst markets have come off of extremely high valuations and have often led to steep declines that produced attractive valuations poised for a new bull run.

I don't know what the market will do in the next day, week, month or year. But it seems fairly obvious that over a (say) 10 year period, a market which is currently way undervalued (such as 1982) is far more likely to have a long, sustainable rally than a market where valuations are high relative to historical averages (1929, 1966, 1999, 2007). And it would seem, at some level, that cranking up the equity allocations made a lot more sense in 1982 and early 2009 -- as would taking *some* off the table in '66 and '99 and '07.