As we start the beginning of 2017 all the notions and anecdotes come to mind. We just finished up the ‘Santa Claus Rally’ period, and for the third year in a row it was a dud. That was the first time the markets soured during this period for a third time. Strikingly, 2016 was supposed to be a bad year due to another anecdote, the January performance. As the saying follows, ‘as January goes so goes the rest of the year’.
January was as bad as could be in 2016, but the markets shrugged that off and posted robust gains. In fact, the Russell 2K was up nearly 43% from the low in January! I bring this up as we often lean on these notions, they used to work nicely in the past. But, in today’s fast moving markets it is impossible to do anymore. Why is that?
Machines are running the market action each day, and in the short run to be sure. These machines – algo programs and high frequency traders do not care what the calendar is saying, they only care are about news, prices and levels. Back in the day when humans were the main ones running the show it made more sense. The ‘sell in May and go away’ worked for years, and it made sense. But now we see each day, week, month and year is different and with quick responses to news and flash events, well — times have changed.
Even during the trading day when we hear about ‘market on close’ orders with big imbalances they tend to not have much meaning. Be wary of these as many still tend to believe, but be more aware of price action – the market will never deceive.
