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January 4 2014 – Weekend Market Comment

January 4 2014 - The Standard & Poor’s 500 Index (SPX) fell for the week as investors sold shares after the biggest annual gain in more than a decade, as an improving economy heightened concern about the Federal Reserve's schedule for ending stimulus. The S&P 500 declined 0.5 percent to 1,831.37 in the holiday-shortened week, after completing 2013 with a 30 percent gain, the most since 1997. The Dow (INDU) Jones Industrial Average lost 8.42 points, or 0.1 percent, to 16,469.99 for the week. The U.S. market was closed Jan. 1 for the New Year’s holiday. The S&P 500, which finished last year at an all-time high, sank the most in three weeks on Jan. 2, snapping a streak of rallies on the first session of the year since 2009. The Dow average climbed 27 percent in 2013 for its best performance since 1995.

The S&P 500 remains in a strong uptrend and is now nearing the upper trend line of a twenty-six month channel. First and foremost, there is no sign of a major top on this chart, or any other major index chart for that matter. The Dow, Nasdaq 100, S&P 500, S&P MidCap 400 and S&P SmallCap 600 all hit new highs in late December. Tops often take months to form and we have yet to see a lower peak, a double top or a head-and-shoulders top. The only potential negative is the short-term overbought condition. This however, is a relatively benign problem because overbought is actually a sign of strength. After all, it takes strong buying pressure to push indicators into overbought territory.

CNBCs Art Cashin had a prophetic warning for January that fits well with the way the carts are going, a small correction mid month would be classic and helpful for this overheated market.

So what does overbought look like. Here is the Long Term Bull Bear Lines, notice how the light gree 4 day moving average has gotten far ahead of the 50 day average. Generally it can not keep that distance more than 90 days. 

Te NYSE High Low graph has not had a line cross in many months, clear skys ahead on a steady uptrend.

So lets see what the so called "Smart Money" is thinking. The Primary sell indicator show an extreme positive reading showing a lot of (over?) confidence.

The VIX looks like it is not sure what to do next . . .  Notice the SPY graph at the bottom, it is colored by a system called the Elder impulse system, the blue bars indicate a weaker market. Weaker does not mean "done for" it is more like indecision. 

Last week I showed you how OBV can be used to predict weakness and the week was a soft market.

Here is an interesting indicator in the Stochastic at the top reaches this zone it is time to switch from aggressive to defensive investments. 

Here is an interesting gem. Below is a look at how sector weightings have changed over the last 23 years going back to 1990.  The ebb and flow is pretty interesting. As you can see the tech bubble burst on 2000, materials have not been as important since 2000 and banks have recovered since the financial meltdown of 2007

How to Play This
Same advice as last week rotate into low beta stable equities and broad ETF. raise your trailing stops


This graphic show all the tweets about New Year's resolutions in the last two weeks and show us everything we're constantly trying to improve: our bodies, our jobs, and our minds.

We start every new year with the feeling of a clean slate, a time that we can set our goals and intentions and actually make the changes we want to see in our lives, to get rid of those nagging bad habits and usher in some good ones. But by February, many of our resolutions are already abandoned or forgotten. So why do we struggle so much to follow through with the resolutions we set for ourselves? You can read all about it setting New Year Goals Here