Sunday, January 03, 2010

Happy New Year!

According to the Stock trader's Almanac, the January Effect refers to the historical tendency of small-caps to outperform large-caps from mid December until April. This period also coincides with the bullish six month cycle that extends from November to April. Historically, the strongest period of small-cap outperformance runs from mid December until end January.

The graph above which compares performance of the Russell 2000 (red) versus the S&P 500 (blue). Clearly, the January Effect is in play.

The NASDAQ chart above shows a solid BO from the base with a low volume rally. The S&P chart below shows a failed BO. What happens when one market breaks out and is unconfirmed by the broader market? Price usually reverses.

The monthly S&P timeframe shows that we have retraced 50% of the losses from high to low. It also shows this month's range is NR7 and the momentum is waning.

The VIX is forming a broadening pattern and looks poised to bounce. The S&P versus VIX chart below was highlighted last week and we note that the VIX has crossed back above the support line.

My thoughts on AAPL - BO premature. We need a right shoulder.

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