Ian Woodward's Investing Blog

A long term follower and supporter of my work wrote me a note about the January Effect and here is my response which I felt I should share with you all to explain our different definitions, especially to help new readers:

Ian – always appreciated. However, please straighten me out.

I have worked on the definition of January Effect of small cap buying years ago starting in first to middle of December and then buying started running earlier into November and even October. If you look at the 3 month chart the Russ 2k outperformed the other 3 main indexes and the same if you go from 1 December. Here is the link to the 3 mo chart (+ 11%) and can easily be read for 1 month with the same comparison.

I have never subscribed to Santa (folks said he didn’t exist when I was a kid) as some of my best gains have been after 12/25. However, the market then usually sells the January effect the first week (sometimes the first trading day but more like end of the first week) and then January is positive by the end of the month.  Tell me where I have been going wrong all these years?

Thanks,  Bruce

The Grinch dampened the Santa Claus Rally, but the January Effect is still on the cards.

The Market Indexes are now Pausing to Refresh and with luck we should see the January Effect kick in soon:

The Canaries have already Paused to Refresh, and are ready to move again:

The VIX has moved up today with the pullback in the Indexes, but if it stays below 17.0 we have room to move up:

%B for the S&P 1500 is at 0.80 and running out of steam, so we are now into a pullback today as expected:

The Acc/Dist Ratio is only 1.25 so there is plenty of room for the Markets to go up:

True to form the Small Caps have already started their run for the January Effect, but expect more moves higher:

Looking at the low, mid and upper four buckets may have some value as to direction so we will watch this item:

We have risen 7 days in a row so we are due for a pullback which is underway as I write this note:

Here is some research I showed you four years ago, and worth noting at this time for the Market being Overbought:

Here is new research hot off the press relating to finding additional value for Overbought Markets…enjoy!

…And would you believe it the pullback is here as I write this with half an hour to go to Market Close:

Happy New Year to you all…give us some feedback on all of this good stuff!

Ian

It’s that time of the year with just four days to Christmas Day, and at long last the Santa Claus Rally seems to be on its way.  But don’t count your chickens before they are hatched, but the last three days have been encouraging:

I have always recommended that one should have three scenarios, “Up, Down and Sideways” and let the Market tell you which one it is on.  We had another “V” Bottom two weeks ago and inside three days this past week we are back up to essentially the old highs.

The previous Leaders and Glamour stocks I call Canaries are not leading except for FB and LNKD:

The VIX has fallen back from nearly going into Oscillation, but we are without a reasonable cushion, and the VIX can go either way, though the feel is that it is headed down which is good for the Market:

The concept of looking at the % of stocks in the Top, Middle and Bottom four buckets is proving interesting and we shall see if the pattern of a couple of months ago are repeated again to confirm there may be value in the concept:

…And here is the sharp fall followed by the quick recovery in a matter of ten trading days…but now what’s next?

Let’s look at the latest set of charts I have introduced you to, to get a flavor of which way the wind is blowing.

The next three days should give us a clue of which factors rule the roost at a point of indecision such as this is.  Good luck to you all and Happy Holidays to all of you around the globe at this holiday time!  Thank you for your support.

Best Regards,

Ian.

I used this Picture six years ago to kick off the Santa Claus Rally, and we have a repeat this past week!

The Bounce Play off the “V” Bottom has been very impressive with 30 Trading days up, so we had the expected pullback and Pause to Refresh this past week.

Fortunately the Volatility Index VIX is quiet, so there is room to play until one gets really cautious again:

The Accumulation:Distribution Ratio couldn’t maintain the high number of 3:1 and so it has backed off with expectations to go to stalemate at 1:1 sooner than later.

With 30 consecutive trading days up, it was high time for a Pause to Refresh and it was an easy call to make which I did last week:

The Twelve Drummers Drumming History over the last two years has now established the longest run at 30 Trading Days, so this will become a valuable yardstick to bear in mind for future long rallies:

Enjoy your weekend.  Best Regards,

Ian.

I hope you all had a Happy Thanksgiving, and now after a Pause to Refresh we should expect to start the seasonal Santa Claus Rally.

The Market Indexes have been very strong coming out of the “V” Bottom and with 30 Trading Days of progress, we are now overdue for a correction and a Pause to refresh before we begin the Santa Claus Rally.

The Twelve Drummers Count has now reach 30 and we have not had a rally like this since January 2013, so the odds favor some form of a correction before we see the traditional Santa Claus Rally:

I have added three columns to give us more insight of how the strength moves up and down the Buckets Ladder.  I show the tally for the bottom four, middle four, and top four buckets which clearly show when the bias is up or down for an Early Warning:

To prove my point, the next chart shows that we reached a Top 4 Bucket count of 82 all of 19 trading days ago on 10/31/2014 and have slid down the count as shown:

%B for the S&P 1500 is still strong at 0.82, but we should now expect a decline based on the above:

This next chart shows the progress in the past 30 Days after reaching a bottom, and as I suggest it is now time for a correction:

Lastly, here is the chart of the Accumulation:Distribution Ratio with the NASDAQ now in Overbought Territory and expecting a correction:

Net-net, play the odds of a small correction before we start the usual Santa Claus Rally, but realize we are into New High Territory.

Best Regards,

Ian.