Mark Fichera currently uses skills learned over the past 40 years to provide investment ideas based primarily on technical analysis. He is particularly well versed in point and figure charting, trend line charts, Japanese candlestick complimented by various technical indicators and...
Publish Date: January 27, 2007
Mark Fichera
Tis’ the season for market “Barometers,” and one of recent vintage is the Super Bowl Indicator. If an "old" NFL team wins the big game on February 4th, the stock market will have a good year. The “Bullometer” is a lock for 2007 since both teams are from the “old NFL." The Indianapolis Colts slipped out of Baltimore (old NFL) under the cover of darkness. The Chicago Bears are traditional “old NFL." So the market can't miss going up in 2007, right?
The January Barometer forecasts the year based on January's performance. If the month closes up, the market will record a positive year. The DOW 30 Industrials were 24 points higher after Friday’s trading (1/26/2007) than the 12,463 close at the beginning of 2007. But, we still have 3 trading days left this month!
Then there is the “always?" reliable November though April seasonal pattern. Studies by the Stock Trader’s Almanac, published by Yale Hirsch, indicate that since 1950, the average annual return for the DOW 30 Industrials was more than twice the total return for the May through October seasonally weak period. 2006, however, proved to be an exception. September and October combined accounted for roughly 2/3 of the year's gains. These 2 months, historically, are the “worst “two of the year.
Last, but not least, there is a little know governmental barometer! A change in political control of both houses, the Senate and House of Representatives, during the mid-term election leads to an approximate 20 % market gain over the next 12 months.
We are entering the 33rd week of a rally that dates back to the lows of June 13, 2006. The main drivers leading this move have been broad market strength (advancing versus declining stocks) and the ever present ample supply of liquidity (money!!). The crowd's reluctance to “really " buy into this rally has also contributed significantly. A good example of this occurred this past Thursday, January 25th. The DOW 30 Industrials dropped 119 points and option traders on the Chicago Board bought puts aggressively illustrating their fear of a correction, or worse a Bear Market. If they were committed bulls, shouldn't they have bought calls to demonstrate that bullishness?
Markets don't always move higher. It would be nice if they did, but a Pollyanna we are not! Somewhere out in time, there is a correction or Bear market lurking. But until more evidence indicates such a condition, continue to take advantage of “Value " opportunities. One indicator to watch is the yield on the 10 year Treasury Note. Last week, there was a full one tenth of one percent increase in the percentage yield to almost 4.9%. From its low point of 4.4% just 8 weeks ago, the increase is approximately one half of one percent. Higher “risk free “yields can become stiff competition for expected stock returns.
A second concern is investor sentiment. Bulls are everywhere, and Bears are hard to find. Corrections of 2 to 5 percent, even approaching 10 %, can occur in a bull market move.
Gold closed at $ 650 per ounce on Friday. It briefly spurted to $ 660 before settling at its old resistance level. It is still in a long term bull market with the next important resistance at $ 675 per ounce. Initial support is $ 600, but major support exists at $ 575. The precious metals index, XAU, closed at 138 on Friday. Its “real " range since early 2006 has been between 120 and 150. The sharp move to a 170 peak in early May, 2006 was a brief exception.
It might require a few more tries for gold to decisively break the $ 650 level. That could take a week or two, maybe longer. However, technically, both the yellow metal and the XAU Index appear poised to move higher. Let us not forget silver!!! It does not attract much conversation in the financial media. But its chart looks even better than gold's, and the leverage favors the “white” metal.
The opinions and commentary provided by the advisors in the My Automated Advisor Newsletter are the opinion of those advisors and not of My Automated Advisor.
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