Will markets continue to rip in January?

It is sometimes uncanny to see how well seasonality plays out in certain years. 2023 was certainly one of them. If you are a bull, the chart tells you that January is usually a positive month and there will be no corrections until February. 

But to refute that seasonality thesis, you don’t have to go too far. Just look at what happened in Jan 2022. The markets literally fell off a cliff starting Jan 5th. The first 3 trading days are not too reliable if you want to project out a trend, so whether you are bullish or bearish, my suggestion is to let things settle out for a few days before you start trading. 

SPY 1y daily (Another fakeout?)

December brought some bear traps and fakeouts with it. RSI dropped below 70 on 12/4 and 12/20, only to reverse back. We are seeing a 3rd occurrence, and it remains to be seen if this one is real.

I have been able to eliminate short term noise from my MRI indicator (indicator under development) and now it only shows long term trends while filtering out noise. Since I am not a day trader and my trades last 30 days, I need some way of identifying a longer term trend that is forming so my trades expiring upto 4 weeks out can ride that trend to become winners. My goal with this indicator is to apply it to the indices and pick a direction until the reverse arrow shows up. I don’t plan to turn it into a stock picker’s tool (at least until I bullet proof it with the indices first). The good news is that the indicator wasn’t bear trapped by any of these fake reversals yet and we are yet to see the indicator flash a reversal signal.

QQQ 1 year daily (Close but no cigar)

Looking at QQQ, we are also seeing some clues to an early weakness. But I am not about to start piling on put spreads unless I get a clear signal. Also note that this rally was so strong that the only way we will get a meaningful pullback/correction is when all indices participate in it. As you will see in the DIA chart (below this one), there are absolutely ZERO signs of weakness in DIA, although QQQ and SPY are at least beginning to show some clues. 

DIA 1y daily (relentless)

DIA continues to be the scariest of them all. Just look at how long it has stayed in overbought zone with not even a bear trap/fakeout drop below 70 like the others. I have a bad feeling about this one and it might face the steepest drop in the coming months. For now, I am keeping my trading volume low and will keep nibbling on those test the waters trades. 

IWM (Will it breakout from a multi year trading range?)

Russell 2000 is the talk of the town and since I trade IWM, I use that as a proxy for the Russell. Every wall street analyst is saying that market participation and breadth has dramatically increased over the past 2 months, and the rally which was confined to the Mag 7 most of this year is now broadening out. There are also claims of IWM hitting $230 in the next couple of months.

Of course anything can happen, but I am laser focused on that 200 resistance. IWM briefly went to 205, but that doesn’t mean much. It needs to blow past $210 and if it can pull that off with conviction, those $230s will come. But for now, it is still range-bound.

FAANGs (AAPL showing weakness)

The FAANGs serve as their own index. In fact the combined value of U.S. companies that are over a Trillion dollars hit $10 TRILL this year. Looking at the Mag 7, things are going pretty strong, (Click on image below to enlarge), but AAPL is the first one showing some weakness. Everything else doing just fine. I am keeping a close eye on this grid as any cracks appearing here will directly translate to Nasdaq’s fall.

Market moving events next week (Bunch of employment data)

We have FOMC minutes being released on Wednesday. Investors will be slicing and dicing those to see hints of 6 rate cuts next year, even though Powell said no such thing. That is followed by a lot of employment related data coming out later this week. 

Earnings 

Enjoy almost no earnings until the 3rd week of January as that is when things will start heating up. 

Cheatsheet