I hate when people try to predict future market movements. However, one statistic I do know is true is that more times than not, January sets the tone for how the market will finish the new year. As the last trading day in January 2010 halted to a close, we saw yet another high volume selloff, leaving the SPY down to $107.39 from a New Year open price around $113.00.
While I am not necessarily implying that the move down in January will follow through the rest of the year, I do think it is important to pay some respect to the downmove we saw for the following reasons:
1) This selloff is coming in with far above normal volume, adding to the validity of the move
2) The markets moved nearly straight up over the past 9 months, which is a remarkable feat but as we all know the bulls can only hold control for so long
3) The markets have taken a much different tone lately. What I mean by this is they are expecting extraordinary news otherwise selling off, we are seeing higher volume on the downmoves and lower volume on the upmoves.
With that being said, I just want to caution traders to remember one of the golden rules of trading: The market is ever changing and to survive as a trader we must adapt. So keep in mind that after several months of a strong, rallying market we are now seeing what looks like at least a short term, high volume selloff--place your trades accordingly.
Take care all and have a great weekend,
Brendan
The January Effect: Will January 2010's Selloff Lead to a Bad Year for the markets?
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