Thursday, January 31, 2013

The January Effect

In this video, Jim Cramer explains the rapid rise in market indexes this January.  He thinks it has largely been caused by fund managers trying to keep up with the market averages.  I would agree.  There has also been much said in the media about the amount of cash on the sidelines, and the return of retail investors to the markets.  Don't be fooled, my research still shows a declining average volume for the major markets, and mostly, less than average trading volumes.

The Coyote Affect
The media has made much of these "historic" advances.  Myself, when I see the markets disregard the drop we saw in U.S. GDP numbers on Wednesday, I begin to watch for the coyote affect (ala the Roadrunner Show, when the coyote suddenly finds himself walking on thin air with nowhere to go but down).

Cramer talks about the potential "buying panic" in technology stocks caused by good earnings reports.  What he doesn't say is the earnings estimates have been set relatively low, and the seasonality clock has already run out for technology stocks for the beginning of this year.  

Caution Required
Me, I use charts to tell me where the market is at, and what I am seeing at every level is a market that is largely over-bought, for all the reasons Cramer mentioned.  Unlike Cramer, I take my cue from the charts, and while the markets may continue higher from here, they are signalling a cautious approach in the short term.  He may think we are in for a brief pause, but only time, and the charts, will tell for sure.

What charts, if any, do you use?

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