We are always amused by technicians trying to predict what the market will do based on something that may have happened some time in the past, when in reality the only thing that matters is the distinction: "Pre-Central Planning" and "Post-Central Planning" or PCP (for both) - in other words, anything prior to 2009 is completely irrelevant when it comes to analyzing the market. Yet people continue doing it. And while the predictive pattern of such formerly "self-fulfilling prophecies" is now gone, courtesy of whatever side the Chairman wakes up on, traders habits die slowly. Here is Art Cashin with his summary of what trading patterns are relevant for the new year. That said, we remind readers that the first trading day of 2011 saw the S&P rise from 1257 and close at 1272, something which #CarbonCopy2012 seems dead set on imitating. After all, with central planning, why recreate the wheel - Brian Sack can just hit the "repeat 2011" program button and all shall be well. All the way up to a 2012 year end close at 1257.
But first, here are Art's comments "Commuting by Roller Coaster"
A Year Of Commuting By Roller Coaster – In Wall Street watering holes, there’s been an old saw, used for decades, to demonstrate that statistics can be less than useful and sometimes misleading. The old saw is the fact that – mile for mile, the safest form of travel in the United States is riding a roller coaster. The point being that while commuting by roller coaster may be exciting, safe and even fun, it doesn’t get you anywhere.
The stock market events of 2011 reminded veteran traders of the old saw. There were stunning ascents, heart stopping plunges, mind numbing turns - and at the end – you wound up just about where you started and the ride cost you money. That was 2011 in a nutshell.
Friday’s action looked like the year in miniature. The first half was the best part, then a mid-session give up followed by choppy attempts at recovery, only to slump to a close. That put the S&P almost exactly where it had started the year.
And now, some pattern spotting:
Trading Patterns In The New Year - Wall Street lore is filled with patterns, both real and imagined, that impact or affect the trading in the opening week of the year. The foundation of many assumptions is that “new money for the New Year” (pensions, et. al.) is ready to flood into the market and lift prices.
Even though the pre-opening futures make that look “dead on”, history is not so re-assuring. Here’s what the sharp-eyed veteran, Jim Brown, noted in this Premier Investor Newsletter:
Of the last 15 years there have been an almost even number of up days and down days (8-7) on the first trading day of the year. It is hard to see a trend there. If we extend it to cover the first week it remains a dead heat.
However, if we look at the end of January compared to the first day of the year the Dow is down 10 times and up only 5. Looking even closer there was a significant sell off in January 12 out of 15 years. In some cases they lasted only a week or so but they were normally significant program driven declines. Once the year end money was invested a sharp selloff appeared to capture profits. I speculate the hedge funds were invested ahead of the retirement fund pop for mutual funds and the hedge funds took profits when it was over. The pattern is very well defined.
Jason Goepfert, of SentimenTrader found a pattern triggered by the kind of air-pocket selloff we saw on Wednesday and a more positive beginning to the New Year.
The reason that there’s so much attention to how the year opens is the First Five Days pattern, researched by Yale Hirsch of the “Stock Trader’s Almanac”. Of the 38 most recent years that the first five days resulted in a gain, the year, itself, was up 86.8% of time. The pattern is a bit less successful when the first five days are down. That’s got a 50/50 yearend predictive value. The “First Five Day” pattern is one of the most widely discussed, maybe right behind the Super Bowl pattern.