January has ended and so goes the “January Effect.” More on that in a moment, but, in the meantime, February is here and the market, although still edgy, seems to have lost a little of its panic, as has oil prices.
- Crude oil finally hit the 43 handle and came within cents of our long standing Fibonacci target. In doing so there was massive short covering on Friday which finally sparks hope there will be a bottom.
Okay, so let me deal with the ubiquitous and never-ending superstitious aspect of the market. First, I need to say that it strikes me as odd that something so important to so many people and something filled with so many highly educated and intelligent people can still run with ideas that are clearly not rational or logical.
- Unlike this year’s Super Bowl, U.S. stock market performance has essentially followed the same script as last year thus far. Back in 2014, stocks fell around 4% in January, raising fears that the prolonged uptrend was finally be coming to an end.
The above is an example of what I speak. Aside from any last minute screw-ups (think Super pass from the 2-yard line with the Super Bowl on the line), the market will always do what it does – freak out, not freak out, all the while always seeking balance. True, it can panic, which is irrational, but it can also move because of perceived ideas, which is not logical. For example, take the January Effect.
- Many of us know the “January Effect” — also referred to as the “January Barometer”— as the belief that equity market performance in the month of January will predict how the market will perform throughout the year.
Here we are, once again, in February and the breathless media is all over the January Effect and the only reason it can get away with that nonsense is there are “analysts” out there feeding the talking heads with the idea that somehow there is validity to the idea that there really is a January Effect.
- This year, traders are once again fearful that January’s 3.5% pullback may portend darker times ahead for U.S. stocks. The media has latched on to stories about the bearish implications of the so-called “January Effect” (the idea that the stock market’s performance in January can foreshadow the full-year performance), despite the fact that stocks have actually moved higher over the final 11 months of the year five of the last six times that we’ve seen a down close in January.
Unless the oft-revised US economic fundamentals take a turn for the worse this year, it appears the January Effect will again be nothing more than chum for the feeding frenzy the breathless media creates when it latches on to the superstitious dribble that is always present in an industry filled with really smart people.
As to oil prices, well, make no mistake in this moment, the current bump is about short covering. Does this mean the oil market has found a bottom? Possibly, but consider this, There is still an inventory surplus of some 2-million barrels and demand has bottomed out, even if oil prices have not. So, maybe speculators can drive the price up, but, fundamentally, nothing has really changed. Despite the recent loss of more than a few small oil producers in the US, the war still goes on. We still have ways to go before we declare a winner.
Trade in the day; invest in your life …
