Equity Clock

Stock Market Outlook for January 24, 2012

Upcoming US Events for Today:

1. The FOMC Meeting Begins
2. The Richmond Fed Manufacturing Index will be released at 10:00am.   The market expects 6 versus 3 prior.
3. The President delivers the State of the Union address at 9:00pm.

Upcoming International Events for Today:

1. The Bank of Japan Rate Decision will be released.   The market expects no change at 0.10%.
2. German PMI Manufacturing will be released at 3:30am EST.   The market expects 49 versus 48.8 previous.   German PMI Services is expected to reveal 52.4, no change from the previous report.
3. Euro-Zone PMI Manufacturing will be released at 4:00am EST.   The market expects 47.2 versus 46.9 previous.   PMI Services are expected to show 49 versus 48.8 previous.
4. Canadian Retail Sales for November will be released at 8:30am EST.   The market expect a gain of 0.2% versus a gain of 1.0% previous.

The Markets

Markets in the US traded around the flat-line on Monday as investors showed little conviction to alter portfolio allocations prior to the two-day fed meeting that begins on Tuesday.   Investors are largely anticipating some hint of QE3 as the committee meets for the first time this year.   The certainty of this event is up for much debate.   On the one hand, economic data has shown improvement as of recent and the Fed’s target for unemployment has been met much earlier than was previously forecasted.   However, it is becoming clear from recent price index data that deflation is gradually becoming evident, which the Fed may perceive as a threat to the present economic momentum.   Much will be considered and a lot more will be anticipated, but the final result may set the market up for failure given the complacent mentality of many investors.   The news to be released this week, from the Fed and otherwise, will likely be influential on market direction going into the month of February, which is seasonally a slower month for significant economic data.

With the month of January nearing an end, I thought it might be beneficial to pull up a monthly chart of the S&P 500 to determine the prospects going forward.   The chart shows consecutive higher highs and higher lows from the March 2009 low, a bullish pattern for the market.    Despite the plunge back in August and doom & gloom speculations that have accompanied, the trend remains higher until the point in time when a lower significant high (or low) can be achieved.   Presently very few analysts are forecasting anything above last May’s peak around 1370, suggesting that investors may look to heavily liquidate positions should the equity benchmark push closer to this level.   The concern then becomes that a lower high may be fulfilled, which would create a pattern that resembles a head-and-shoulders top; a pattern than would imply downside potential to a range between 800 to 900, or over 30% lower from present levels.   The decreasing volume as of recent, showing waning conviction, provides merit to this bearish scenario.   This bearish possibility remains just that, “a possibility”, until confirmation of the next intermediate high is obtained.   The chart also shows one other bearish quality.   The 50-month moving average appears destined to cross below the 200-month average, an event that has not been seen for many decades.   This bearish omen is more of an interesting note rather than any tradable indicator due to the extreme lag in these moving averages compared to the price action.   The key takeaway from this chart is that markets are nearing an important juncture with much to prove as it pertains to the bullish case.   Upside conviction remains relatively absent and momentum indicators are not showing any significant strength either.   The longer-term path for the market could become clear fairly quickly over the next couple of months.

Sentiment on Monday, as gauged by the put-call ratio, ended bearish at 1.10.   The ratio spiked to start the week as concerns grew that Greece had yet to reach a deal with private creditors on a debt swap agreement.   Investors subsequently turned to the protection of put options in the event that the situation deteriorates further.   The volatility index marginally increased as a result.  Monday’s spike in the put-call ratio is coming off of very complacent levels that have been evident throughout January, potentially indicating a peak should bullish momentum become exhausted.

Sectors that Moved the Market

S&P 500 Index

Chart Courtesy of StockCharts.com

Technical Indicators

Candlestick Analysis

Total Returns

Yesterday: 0.05%  –  Trailing 5 days: 2.09%  –  Trailing 30 days: 4.00%

Averages for current day based on past 20 years of data

• Current Day: –0.21% with 64.29% of sessions gaining
• Next 7 days: 0.02% with 57.00% of sessions gaining (Max return: 1.17% by January 27 on Average)
• Next 30 days: 0.32% with 55.07% of sessions gaining (Max return: 2.93% by February 9 on Average)

TSX Composite

Chart Courtesy of StockCharts.com

Technical Indicators

Candlestick Analysis

Total Returns

Yesterday: 1.01%  –  Trailing 5 days: 2.38%  –  Trailing 30 days: 4.99%

Averages for current day based on past 10 years of data

• Current Day: 0.38% with 57.14% of sessions gaining
• Next 7 days: 0.14% with 47.33% of sessions gaining (Max return: 1.13% by January 26 on Average)
• Next 30 days: 1.27% with 55.34% of sessions gaining (Max return: 3.68% by February 12 on Average)

Horizons AlphaPro Seasonal Rotation ETF (TSX:HAC)

• Closing Market Value: $12.60 (down 0.16%)
• Closing NAV/Unit: $12.56 (down 0.09%)

Performance*

* performance calculated on Closing NAV/Unit as provided by custodian 

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