Replies to post #8832 on Sector Investing

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Amateur Investors Weekend Stock Market Analysis (2/6/10)

http://www.amateur-investor.net/Weekend_Market_Analysis_Feb_6_10.htm

I'm sure some have heard of the January Effect which means what happens in January will be the trend for the year. Going back to 1897 the Dow has had 73 January's in which it had a positive return. Of those 59 (81%) ended up with a positive return for the year. Meanwhile there have been 39 January's with a negative return. Of those 26 (67%) ended up with a negative return for the year. January had a negative return so there is a 67% chance of a negative yearly return based on past history for what it's worth.

January Effect  Table 
 Positive   Positive   Negative   Negative 
 January    Yearly     January    Yearly 
 Return 	   Return     Return     Return 
 73 Months  59 (81%)   39 Months  26 (67%)

On Friday the S&P 500 bounced right off a critical support area in the 1043 to 1046 range which coincided with its 200 Day EMA (green line) and 38.2% Retrace calculated from the July low to the January high. Also notice the -2.0 Standard Deviation Band (blue line) based on Linear Regression was also around 1043 as well so this was a major support level.



Also keep in mind so far the S&P 500 hasn't even retraced 23.6% of the 72% move from the March low of 667 to the January high of 1150.



For those that follow Wave Analysis most believe the current move down from 1150 is evolving into a 5 Wave affair. Wave 1 ended at 1072 which was followed by a brief Wave 2 bounce up to 1105. Meanwhile the current move down from 1105 is the beginning of a 3rd Wave which based on Waves 1 and 2 would eventually drop below 1000 at some point.



Meanwhile to invalidate the above count the S&P 500 would have to rally above 1105. If that occurs then that means the move down from 1150 to 1044 was an "abc" type correction.



Finally despite the recent 9% drop the 5 Day Average of the Put to Call Ratio still hasn't reached the 1.0 level (black line) as of yet. Notice since the March 2009 significant bottoms occurred after the 5 Day Average of the Put to Call Ratio reached the 1.0 level (points D).