Tuesday 8 January 2013

First 5 Trading Days of January

2013 has got off to a good start. Santa delivered 2% gain and the first 5 days have delivered 2.2% gain in SPX. The following is from Stock Trader's Almanac:

The last 40 up First Five Days were followed by full-year gains 34 times for an 85.0% accuracy ratio and a 13.6% average gain in all 40 years. In post-presidential election years this indicator has a solid record. Just six of the last fifteen post-election-year’s First Five Days showed gains. Only 1973 was a loser at the start of the major bear caused by Vietnam, Watergate and the Arab Oil Embargo. The other four years gained 22.8% on average (1961, 1965, 1989, 1997, and 2009). 
First Five Days Changes Table

There are couple of nice posts in Bloomberg about the money losing short trades in 2012:

Okay, the headlines are mine but you get the idea.

Does it mean we can now buy some calls on SPY and forget about the market for the rest of the year? Not really. It is going to be a challenging year to say the least. Taxes have gone up. Net consumer earnings will go down and world growth remains a distant memory. At some point markets will catch up with fundamentals. Million dollar question is: when? Well, honestly, no body knows and I am no exception. But at least I have been steadfast in saying that do not short the market and even when I had taken a short position, I was quick to get out. In my heart I am a big bear but I also know that economy and stock markets are two different animals:
So right now I am long and waiting to add to long on weakness. There is only one short trade in commodities . Earlier I would normally deal in indices but this time I have a bunch of  individual stocks and ETFs which I think will do better than the average market. Let us see how it goes. 

The Godfather of Low Volatility investing , Bob Haugen passed away. I would like to share the following with the readers which resonates with me very well and is actually very similar to my principle of "Relaxed Investor":   http://www.marketwatch.com/story/remembering-the-father-of-low-volatility-investing-2013-01-07

Coming back to markets and away from equities, I think coal has made a bottom and coffee is in the process of making one. Normally Crude takes a dive in January but so far this year, it has held steady. Similarly, gold and silver are also making a base. Grains are still few weeks away from making a tradable low. 

This week, so far the equity indices are in a consolidation mode and is digesting the gains. We are close to the highs of 2012 and SPX is facing resistance. I would have liked the correction to be little more deep but it is what it is. May be we will get few more days of small reds. Then again, these days I find more opportunities in commodities than in equities. Bonds are out of bounds for me for now because they are moving in a range.

That's all for this evening. Hope you are having a great time and thanks for sharing my thoughts. Stay nimble and good luck trading.

1 comment:

  1. The crowd is getting long - http://tinyurl.com/d2fj684
    It feels kind of strange: no Europe austerity, no fiscal crap, no VIX in twenties (although VIX futures pretty much are). Even ZN is suspiciously silent.

    We're few percents from 5 year highs, with potential bomb from cenate in March, with VIX in 13th - I'm not buying into this setup.