After all the positive seasonality that surrounds the end of a year (Post-Thanksgiving rally, Santa Claus rally, January Effect), it is probably not too surprising to learn that there is a system that relies on a bearish seasonal pattern. That is, after about 8 to 12 trading days into a new year, the stock market – particularly, the NASDAQ market – tops out and trades lower for a week or so. This year, with NASDAQ being so strong, one wonders whether the system will work. But there have been times in the past where the system has worked even when NASDAQ was relatively strong in comparison to SPX. The system is sometimes known as “The January Defect.”
The stock market has split into two parts recently. Most of the major averages are moving sideways, but staying within easy range of new all-time highs. The NASDAQ Composite, however, and its smaller companion the NASDAQ-100 ($NDX) have been making new all-time highs frequently. This should be a good thing.
The $SPX chart remains bullish in that its trend lines are sloping upwards and support has held. There is support at 2233, and then at 2210 and 2190 below that.
The media confuses the various seasonal trading patterns that occur in January, but the January Barometer states that “As goes January, so goes the year.” This adage is about to be tested again this year.
Overall, the $SPX chart -- which is, by definition, the most important indicator -- remains positive. $SPX did have a pullback at year's end. The subsequent rally off of the 20-day moving average leaves support at 2233 (last Friday's lows). Below that, there is support at 2210 and 2190 (all marked on the chart in Figure 1).
The equity-only put-call ratios have pushed lower as the rally has continued. That means they remain on buy signals.
This week, the OCC sent out a notification that VMIN was going to split 2-for-1. Because the symbol seemed like something related to volatility, I checked into it. What I found was an ETF that looked potentially interesting, and that had been listed last May. For some reason, I had never heard of it, so I decided to check it out.
The final analysis on the $SPX chart is that it is still rising, with rising trend lines, and that means that it is still bullish. In the more traditional sense, there is support on the $SPX chart at 2210 and 2090.
First and foremost, it must be noted that the chart of $SPX is still in an uptrend. The 20-day moving average is rising, and no major trend lines have been broken. $SPX has rallied so hard and so fast since the election that it is quite a ways above support, which is 2210 and 2190. As long as that support holds, the chart of $SPX will arguably still be in an uptrend.
