2016 – Year in Review

  • SumoMe


OK, granted the above analysis is based on a “small sample size” and is a little short on specifics.  Still, I think it pretty well captures the overall tone of things so far in the New Year.  Stocks and commodities (with the exception of gold) have been pounded.  The U.S. dollar and bonds haven’t done much and foreign stocks and bonds – in the immortal words of whoever said it first – fugedaboudit.

*Just think, not that long ago we were debating which economy – U.S., China or India would experience the greatest growth.  Now we are wondering if we might see a “race to the bottom.”

*Not that long ago the three most valuable commodities in the world were gold, crude oil and whatever came in third (my wife would vote for coffee).  Now we are wondering if it will soon be canned food, shotgun shells and cabins in the woods……..But never mind about all that right now.

A Snapshot

For the record:

*Most – but not all – of the trend-following tools I personally follow are now bearish for U.S. stocks.  This suggests that a tremendous amount of caution is in order and that long-term investors should be thinking about how to hedge their portfolios in case the bottom does in fact drop out.

*At the same time, most of the overbought/oversold type indicators and models that I personally follow are anywhere from mildly to extremely oversold.  Which simply means that if you are considering panicking there may be a better time for that in the not too distant future.

First Five Days of January

The values in Figure 1 were compiled by Tom McClellan of McClellan Financial Publications.  It shows all of the years when the market showed a loss over the first five days of January, and how the market performed for the month and calendar year after that.1Figure 1 – S&P 500  Performance after 1st Five of January are Down (Courtesy: Tom McClellan of McClellan Financial Publications)

Interestingly the four worst January’s previously (1991, 1978, 1982, 1988) all ended up showing a gain for the full year.   On the other hand, the next three worst years (1974, 2008, 1962) witnessed some serious bear market activity.

My quick take is that a “down first five days” in and of itself has little predictive value (although if the first five days of January, the last five days of January and the month of January as a whole are all up or all down, that is a different story) that investors and traders should monitor trend-following and overbought/oversold indicators instead to guide their trading.

Jay Kaeppel