The party started off early as optimism was spewing from the talking heads at CNBC and the majority of the financial news media. Why not, it’s a New Year and a new outlook on what is ahead in 2012! Mr NASDAQ led the major indexes today, but failed to see volume above average. Sure volume can come in later, but it didn’t appear institutions were willing to buy up stock hand over fist. There were quite a number of negative reversals in leading stocks while the bottom of the pile was pushing the market up. Financial stocks continue to appear to be bottoming out, but it will take much more than a few names to turn this into a sustainable rally.
It is certainly a huge positive for the market to see banks rallying. I have mentioned a few names, but ones like WFC and PNC are really shaping up nicely. They are forming right sides of bases now, the run ups. Typically, it is important for stocks to run 20% and settle into a nice consolidation period before running higher again. The best gains come from stocks that undergo consolidation patterns and breakout from those solid patterns. We need to be patient and let the market come to us and allow the breakouts occur.
Today’s move pushed the number of stocks above their 20 day moving average above to 76%. It is a lofty level for the market, some consolidation of today’s gains would be needed here. But, I come back to the BWLD and PNRA of today’s market and these are never good signs. BWLD and PNRA have been solid stock plays and they were absolutely gutted for being leading stocks. Crude oil over 100 a barrel doesn’t help either, but there were institutional net sellers in those stocks and should be a concern for this entire market. Can consumers really afford more than $100 a barrel? The market will answer this question for us, but I hardly think so.
One thing I did not mention above is the Dow Jones Industrial average sported a golden cross today. CNBC had been running a few articles on the topic, but I went back on the entire history of the Dow and found these findings:
30 Day G/L 60 Day G/L 90 Day G/L 180 Day G/L
Average .57% 1.22% 2.52% 5.33%
Avg Gain 4.44% 7.25% 8.39% 15.61%
Avg Loss -5.42% -6.83% -8.05% -9.41%
Prob Gain 61% 57% 64% 59%
Prob Loss 39% 43% 36% 41%
Clearly a bullish tint to this golden cross, but it boils down to limiting your losses will help boost your bottom line. Interestingly enough, there was one time in history the golden crossed occurred and that was on 1/26/1961 and produced gains across the board. There is a bullish tint to this move over the long term, we’ll keep an eye out going forward.
Cut those losses short!
