Does anyone remember the word “jones,” as it relates to addiction, or, perhaps more accurately, intense desire? Back in the day, we would say, “I am jonesing” for this or that, meaning we needed to have it to satisfy an intense desire. The market is continually jonesing for data, for numbers, for conclusions extrapolated from the data.
Granted, the fundamental information the market needs to asses arrives mostly in the form of numbers and tracking the market requires numbers, and trades are executed by the numbers, and, well, I guess there is a reason the market joneses for numbers. It is all about the numbers.
And yet, when I come across some market “numbers,” I wonder about the merit of those numbers. I think about if they truly have meaning or if they are just random but accurate expressions of what has happened in the market and they are “much ado about nothing.”
- There is the somewhat reliable “January effect”, in which the first 5 trading days of the new year are a good rubric for the remainder of the month. The first week and the first month piggyback, thus intensifying January’s effect on the year. A down week one for a new year – followed by a down January month – is not a good portent. It has led to 10% corrections in 7 of the last 7 occurrences.
Is the above something we need to consider seriously? After all, seven out of seven is 100%. Does that perfect score mean it will happen again? On the other hand, the author does use the words “somewhat reliable” to describe the so-called January Effect. That makes me wonder if my ascribed 100% accuracy rating is legitimate.
Looking at it another way, one can see another possibility, one just as likely to occur as a 10% correction in the next month or so. Given the scenario described above, we have a set of defined numbers, and even though the numbers are different, the context is much the same as a set of dice, a set of two die for example. If you roll the dice, it is possible that a pair of sixes will come up seven times in a row. Not probable, but it can and does happen.
Now, if you take a down January and a negative first five trading days in January and you roll them, so to speak, it is possible that combination will be followed by a 10% correction sometime in the same year seven times in a row. According to the above, we have seen it.
Now, continuing the dice comparison, is it then likely we will see another pair of sixes, or, in the case of the market, a 10% correction this year? For the dice, it is not likely sixes will come up again. Mathematical odds and probability predict that outcome. For the market, well, consider the following.
Ten percent corrections come and go, and they come or go without regard for January, or any other month for that matter. They come because the market always seeks balance, not because the market had a bad first month in conjunction with a bad first five days. The market goes up or down on news, geopolitics, and fundamentals, not omens derived from mathematics. If the market should correct 10% or more soon, it will not be because of January’s numbers.
BTW, and for the record, I don’t discount the reality that a correction is coming; they always do. I just don’t know when or how big.
- U.S. stocks gained on Thursday despite the Commerce Department reporting that U.S. gross domestic product declined at a one percent annualized rate in the quarter. Analysts were expecting GDP to decline 0.4 percent.
I guess my analysis yesterday was on target. The market is seeing through the negative headlines and, in this case, discounting the numbers because it understands the reality here – the lagging numbers for the past winter are irrelevant moving forward. Economically speaking, things are on track and the momentum will pick up again.
- Chicago PMI climbed to 65.5 in May, the highest level since October. This beat expectations for a fall to 61 and is up from 63 in April.
- The PMI’s faster expansion was helped by a return to normality following the adverse weather conditions of Q1, with companies playing catch-up to make up for lost output.
So, if you are jonesing for numbers to fulfill an intense desire to know the market future, stick with the fundamental numbers, the data that actually informs and drives market sentiment.
Trade in the day; invest in your life …
