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| "As Goes January..."? Stock Bulls Better Hope Not! - Jan. 24, 2005 |
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Summary
"As goes January..."? Stock bulls better hope (pray) that 2005 turns out to be a major exception to this annual battle cry heard on Tout TV and the other venues in the regular propaganda loop. Of course, this is the bulls' mantra in years containing a far better January than this one has been. Even last week's expiration wasn't able to pull January 2005 out of the toilet!
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NOTE: If you are a visitor to the GRA website, please be sure to read the "Special Announcement" found at the end of this article (after the article's last data table).
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For stocks, the first week of January stunk. The following week was better, but certainly not great. Last week, the market returned to stink status.
And this was despite an options expiration and the potential manipulative "magic" frequently accompanying these events. Not last week's however. Attempts to rally the market and expunge index-option puts failed miserably, with the S&P 500 finishing last Friday at 1,167.87, down 1.4% for the week.
The S&P's close below 1,170 resulted in a heavy volume of SPX puts with strike prices between 1,170 and 1,200 being in the money. And this might also have signaled trouble for certain equity put options that were written naked, will have been exercised, and where the blocks of stock will show up for sale sometime this week. If so, the sales will likely show up relatively early in the week.
My present schedule anticipates finishing and posting a detailed 2005 economic and financial-market outlook around mid-February. As a bridge, however, I repeat material appearing in two pieces published on 12/20: "A Quick Look at 2005," as well as "The Stock Market's 'Front-Run' Top?" An excerpt from the former:
"Real GDP growth in the second half [2004] will probably come in well below the 5% or even higher rate many projected." [This repeated a point made on 7/20/04, in the "Midyear Economic & Market Review..."]
"I repeat here, since as I currently see the prospective landscape, will remain importantly in play in [2005].
"...This consideration may be especially critical as it relates to the stock market, since during the post-election period, equities have behaved as if the 5% or higher level of growth had come to pass. If you believe that fundamentals eventually catch up to market behavior, this is not a particularly good portent for stocks going forward.
"Which by no means gives short shrift to the dollar's poor behavior. If the greenback's on-balance decline continues in the months ahead, as appears probable, it will likely have an increasingly negative impact on the behavior of US interest rates and stock prices in the months ahead."
And an excerpt from the other 12/20 offering ("The Stock Market's 'Front-Run' Top?"):
"I'll soon have an initial outlook for 2005 in place. However, one of the elements it will contain is the view that some of the bad things not happening to the equity market in 2004 have merely been postponed, not canceled. It is becoming easier to envision an early year 2005 sell-off that could be rather pronounced.
"....There are only nine trading days left in 2004... thus, the stock market sell-off that approaches will probably await 2005. (It certainly will, if CNBC and the other outlets in the regular propaganda loop have any say over the situation.)
"...I probably wouldn't raise this topic now if the decline I was thinking about was likely to be a reasonably modest one, say, something in the 3% to 5% range. But I think it will probably be something a good deal worse, something of the double-digit variety."
Now let's take some of the above thoughts within the context of the following table. The table incorporates my seven-measure stock-market tracking group as the proxy, and 2005 values are through last week's close, so they are fresh.
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SELECTED STOCK-MARKET MEASURES
(Ranked By 2005 To Date Returns*)
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Values on Selected Dates
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01/21 12/31 2004 11/02 12/31
2005 2004 High 2004 2003
Close Close Close /Date Close Close
===== ===== ============ ===== =====
NYSE Comp. 6997 7250 7254 12/30 6701 6440
DJIA 10393 10783 10855 12/28 10036 10454
S&P 500 1168 1212 1214 12/30 1131 1112
Wilsh. 5000 11507 11971 11988 12/30 11075 10800
Value Line 382 404 405 12/30 366 363
Russ. 2000 611 652 655 12/28 585 557
NASDAQ 100 1504 1621 1625 12/29 1495 1468
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Returns for Indicated Periods
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2004 12/31
2005 High 11/02 2003
Thru All To To '04 To
01/21 2004 12/31 High 11/02
===== ===== ===== ====== =====
NYSE Comp. -3.5% 12.6% -0.1% 8.3% 4.1%
DJIA -3.6% 3.1% -0.7% 8.2% -4.0%
S&P 500 -3.6% 9.0% -0.2% 7.3% 1.7%
Wilsh. 5000 -3.9% 10.8% -0.1% 8.2% 2.5%
Value Line -5.4% 11.3% -0.2% 10.7% 0.8%
Russ. 2000 -6.3% 17.1% -0.5% 12.0% 5.0%
NASDAQ 100 -7.2% 10.4% -0.2% 8.7% 1.8%
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Average -4.8% 10.6% -0.3% 9.1% 1.7%
Index@ 105.31 110.62 110.62 110.95 101.70
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Median -3.9% 10.8% -0.2% 8.3% 1.8%
Index@ 105.74 --- 110.03 110.25 101.80
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*Price-only returns. @12/31/03 = 100.00.
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Something very prominent in the above array is how much of this group's overall 2004 returns came after the Presidential election on 11/2. That much changed between 11/2 and the end of December? I hardly think so.
(Nor do I think President Bush won anything like the "mandate" people like Rush Limbaugh and Sean Hannity keep incessantly insisting upon. And I am a conservative talk-radio junkie who voted for Bush. Nevertheless -- no mandate!)
On the eve of the election, Wall Street's leading spin surgeons had assured us that the markets would accept a Kerry victory very nicely. So if this was a correct, intellectually honest assessment, you should not be able to attribute the above group's 9.1% average gain between 11/2 and respective December highs to a Bush "relief rally." (Of course, the weak link in this statement is "intellectually honest assessment.")
Something I think you can attribute it to, at least partially, is the creed of greed that was driving many of the thousands of hedge funds that were trying desperately to recoup some lousy performance in a mere couple months. The thousands of hedge funds that do exist but shouldn't and, in due course, many of which likely no longer will exist.
There's nothing at all wrong with the hedge-fund vehicle. Actually, there is plenty right with hedge funds, just not in the numbers to which they have grown. As was the case with too many mutual funds a few years back, the time of a substantial contraction in the number of hedge funds draws ever closer.
The huge difference between the two vehicles -- hedge funds and mutual funds -- is hedge-fund leverage and the danger it poses to the financial system. If according to none other than Alan Greenspan the failure of Long-Term Capital Management a few years back posed a "systemic risk," what in the world in the aggregate does today's plethora of hedge funds pose? Ironically, a plethora that has put in place some very serious systemic risk that not only was hugely encouraged but also enabled by none other than -- "Maestro" Greenspan!
Which I believe creates a couple more themes for 2005 and going forward, to wit:
(1) Are the abhorrent (versus the totally responsible) hedge funds going to be allowed to jeopardize the functioning of US and world capital markets?
(2) When the hedge-fund debacle begins to unfold in earnest, will more people finally come to realize that this guy Greenspan simply is not and never was all that his sycophants cracked him up to be?
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The two matrixes I put together recently are likely to remain important in coming weeks. They appear below.
The first contains standard breadth measures, with the cumulative results calibrated to 10/29/04 equals zero. The second contains results for four widely followed stock-market measures, with the close on 10/29/04 equaling 100.00 for the purpose of cumulative measurement.
I've chosen this starting point in the belief that the Presidential election on 11/2 served as the excuse -- therefore, inflection point -- for certain parties to "help" (euphemism) prices move higher through year-end. To judge whether this was merely a "manufactured" move in values, we need to track the market's ability either to build on those gains or to dissipate them.
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SELECTED NYSE BREADTH MEASURES --
WEEKLY & CUMULATIVE DATA (10/29/04 = 0)
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Adv - Dec UVol - DVol 52W H - L Closing Tick
Week ----------- ----------- ----------- ------------
Ended Week Cum Week Cum Week Cum Week Cum
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2005
01/21* -807 13599 -1.19 3.76 381 12254 1980 24458
01/14 1366 14406 0.14 4.95 263 11873 1689 22478
01/07 -4633 13040 -2.97 4.81 287 11610 1145 20789
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2004
12/31 2269 17673 0.54 7.78 1193 11323 1950 19644
12/24* 2408 15404 1.31 7.24 1108 10130 1767 17694
12/17 2163 12996 1.02 5.93 1172 9022 2087 15927
12/10 -890 10833 -0.85 4.91 670 7850 1265 13840
12/03 370 11723 0.45 5.76 1684 7180 801 12575
11/26* 4213 11353 1.27 5.31 1229 5496 2745 11774
11/19 -560 7140 -0.39 4.04 1271 4267 2523 9029
11/12 3421 7700 1.69 4.43 1431 2996 2835 6506
11/05 4279 4279 2.74 2.74 1565 1565 3671 3671
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SELECTED STOCK-MARKET MEASURES -- WEEKLY
& CUMULATIVE RETURNS (10/29/04 = 100.00)
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Week DJIA S&P S&P NDX Russ. Russ.
Ended DJIA Index 500 Index NDX Index 2000 Index
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2005
01/21* 10393 103.65 1168 103.36 1504 101.14 611 104.62
01/14 10558 105.30 1185 104.87 1561 104.98 617 105.65
01/07 10604 105.75 1186 104.96 1565 105.25 613 104.97
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2004
12/31 10783 107.54 1212 107.26 1621 109.01 652 111.64
12/24* 10827 107.98 1210 107.08 1614 108.54 649 111.13
12/17 10650 106.21 1194 105.66 1597 107.40 642 109.93
12/10 10543 105.15 1188 105.13 1605 107.94 632 108.22
12/03 10592 106.63 1191 105.40 1614 108.54 642 109.93
11/26* 10522 104.94 1183 104.69 1578 106.12 631 108.05
11/19 10457 104.29 1170 103.54 1552 104.37 613 104.97
11/12 10539 105.11 1184 104.78 1558 104.77 622 106.51
11/05 10388 103.60 1166 103.19 1525 102.56 604 103.42
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10/29 10027 100.00 1130 100.00 1487 100.00 584 100.00
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Special Announcement
If you are new to the GRA website, we would love the opportunity to tell you more about what we are up to as well as about the extremely reasonable cost at which it is available. To begin the process, simply click the following link: Additional Information.
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