Bulls Are Back on Their Heels
Will Powell help them or push them further over the edge?
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Our View
I was talking to the PitBull yesterday, just before the ES futures sold off, and I told him, "how do we know that 3973 isn't the high of this move?"
We don't know, but like many times after the ES rallies, everyone starts talking about higher prices after it's already made a big move and it fails. Additionally, I think there was some pre-Fed and pre-CPI selling.
Just yesterday, it looked like the opposite — buy the rumor, sell the news — but after Daly’s comments from the Fed, the mood on Wall Street shifted and the market remains in a cautious state.
Yesterday’s action wasn’t very promising. This is from my friend Jeff, who runs the Trader’s Alamanac:
Even though S&P 500 finished today with a fractional decline, our First Five Day (FFD) early warning system is positive. Over the first five trading days, S&P 500 gained 1.4%.
Last week our Santa Claus Rally was also positive, and with today’s positive FFD reading there are two possible outcomes remaining for our January Indicator Trifecta. Our January Barometer can either be positive or negative.
For a reminder, the First Five Day (FFD) is just that, the first five days of the year. The Santa Claus Rally is the last five days of December and the first two sessions of January. The January barometer is the month of January. The “Indicator Trifecta” refers to all three measures.
2 out of the 3 are now positive, leaving just the month of January left. Regardless, the results are pretty promising.
In years where the S&P ends higher in all three readings, the market has rallied 90% of the time, sporting at 28-3 record with an average gain of 17.5%. In years where the FFD and SCR are positive but the S&P ends lower in January, the index is still 9-3 those years, good for a win-rate of 75%, although with an average gain of just 6%.
Our Lean — Danny’s Take
There is a lot of talk about a possible turning point this week. Powell speaks today and the CPI number comes out on Thursday. I think part of yesterday’s selloff was pre-selling for both events.
Our Lean: