Summary
A very busy week is on tap, one that should contain a bullish bias for stocks. Thus, the week ahead should provide a good test of how much trouble the stock market is -- or is not -- in.
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We begin this week with the afterglow of a pretty decent Iraqi election, all things considered. Of course, the real test of the success of this endeavor comes in the weeks and months ahead, but this is something market psychology is not going to worry much about right now.
Then comes the State of the Union address on Wednesday night. Be assured you will hear nothing too unsettling coming from the President. From his critics, you will, but they have not taken even a short breather from bashing on him since the election. Their ability to rain on the parade in the short run is limited at best.
The outcome of this week's FOMC meeting is pretty much a foregone conclusion, so it should have little to no negative impact on the stock market.
Then there is the stock market itself. Notwithstanding what it does today, it has had a poor January. Nevertheless, the bullish camp is now working overtime to squelch the idea that January really sets the tone for the entire year. In addition, the market enters this week more oversold than overbought, so the technical backdrop is favorable. However, this could turn out to be a key consideration going forward.
Generally, stocks have more going for them than against them over the very short run. Thus, a rally this week conforms far more to expectations than weakness would. But a rally does not necessarily get stocks out of their 2005-to-date trouble, while additional weakness over the period as a whole would not at all be a constructive development.
Using my seven-measure tracking group as the proxy, here's how the market shaped up coming into January's last trading session:
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SELECTED STOCK-MARKET RETURNS
(2005 To Date Through 1/28/05)
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NYSE Composite Index -3.0%
Dow Jones Indus. Avg. -3.3%
Standard & Poor's 500 -3.4%
Wilshire 5000 Index -3.7%
Value Line Index (Geo.) -5.2%
Russell 2000 Index -5.9%
NASDAQ 100 Index -7.5%
---------------------------------
Average -4.6%
Median -3.7%
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While the above numbers are by no means disastrous, they do deviate materially from the market's positive on-balance behavior of November through year-end. They also represent a significant deviation from the highly bullish views being expressed as 2004 was coming to a close.
Moreover, the January decline has evoked little if any erosion in bullish sentiment. CBOE put/call ratios continue to show sizable optimism, as does the CBOE Volatility Index. The VIX finished 2004 at 13.29. It ended last Friday at 13.24. You certainly might draw a conclusion from this that despite a meaningful drop in prices, complacency remains at elevated levels.
The following tables summarize a sampling of technical and fundamental data I consider of interest and importance. They begin with late October, since as matters currently stand, this marked the approximate inflection point for the stock market's behavior through the end of 2004.
Table 1.
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THE BEHAVIOR OF CBOE SENTIMENT-RELATED MEASURES
AND THE S&P 500 FROM 10/29/04 THROUGH 01/28/05
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S&P 500
Date CBOE Options -------------------
or Put/Call Ratios Vs. Cum.
Week CBOE -------------------- Prior 10/29/04
Ended VIX* All Equ. Ind. Tot.@ Close Week = 100
----------------------------------------------------
2005
01/28 13.24 0.77 0.61 1.19 0.88 1171.4 +0.3% 103.65
01/21 14.36 0.87 0.64 1.91 0.87 1167.9 -1.4% 103.34
01/14 12.43 0.72 0.58 1.19 0.89 1184.5 -0.1% 104.80
01/07 13.49 0.97 0.78 1.60 0.89 1186.2 -2.1% 104.95
2004
12/31 12.73 0.66 0.45 1.68 0.88 1211.9 +0.1% 107.23
12/24 11.23 0.84 0.57 2.19 0.87 1210.1 +1.3% 107.07
12/17 11.95 0.84 0.54 2.10 0.86 1194.2 +0.5% 106.66
12/10 12.76 0.63 0.47 1.34 0.88 1188.0 -0.3% 105.11
12/03 12.96 0.74 0.54 1.60 0.88 1191.2 +0.7% 105.40
11/26 12.78 0.73 0.58 1.76 0.87 1182.7 +1.1% 104.65
11/19 13.50 0.81 0.52 2.53 0.89 1170.3 -1.2% 103.55
11/12 13.33 0.76 0.64 1.15 0.88 1184.2 +1.5% 104.78
11/05 13.84 0.69 0.51 1.32 0.88 1166.2 +3.2% 103.19
====================================================
10/29 16.27 0.73 0.60 1.32 0.88 1130.2 --> = 100.00
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VIX Highs and Lows (Including Intraday)
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Year High Date Low Date
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2005 14.75 01/24 12.29 01/14
2004* 22.67 03/22 11.14 12/23
2003 41.16 03/12 14.83 12/15
2002 56.74 07/24 18.87 03/28
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*New series, all of 2004 forward. @All products.
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Table 2.
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DJIA, S&P 500 AND NASDAQ 100 -- TW0-
WEEK COMPOUND ANNUAL RATES OF CHANGE
-- xx WEEKS ENDED 01/28/05
------------------------------------------------
Week S&P NASDAQ
Ended DJIA 500 100
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2005
01/28 -28% -25% -65%
01/21 -41% -33% -65%
01/14 -42% -45% -62%
01/07 -42% -41% -55%
2004
12/31 +38% +47% +49%
12/24 +100% +62% +15%
12/17 +15% +7% -51%
12/10 +5% +12% +55%
12/03 +40% +58% +362%
11/26 -4% -3% +39%
11/19 +19% +10% +57%
11/12 +265% +236% +240%
11/05 +408% +405% +360%
10/29 +28% +67% +170%
10/22 -54% -46% +14%
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Table 3.
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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
01/28 997 14596 0.21 3.97 399 12653 1773 26231
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
==========================================================
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 S&P Russ.
Ended DJIA Index 500 Index NDX Index 2000 Index
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2005
01/28 10427 103.99 1171 103.63 1499 100.81 613 104.97
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
==========================================================
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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Table 4.
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DJIA, NASDAQ COMPOSITE AND S&P 500 CLOSING PRICES ON
SELECTED DATES VERSUS RESPECTIVE 20-DAY, 50-DAY AND
200-DAY MOVING AVERAGES (Percent or Portion Thereof)
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DJIA Vs. NAZ Comp. Vs. S&P 500 Vs.
--------------- --------------- ---------------
Date 20D 50D 200D 20D 50D 200D 20D 50D 200D
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2005
01/28 -1.1 -1.6 1.5 -1.7 -3.6 3.1 -0.8 -1.5 3.2
01/21 -2.3 -2.0 1.2 -3.6 -4.0 3.0 -2.0 -1.8 3.0
01/14 -1.3 -0.3 2.8 -1.8 -1,3 5.8 -1.0 -0.3 4.6
01/07 -1.1 0.5 3.3 -2.6 -0.9 5.9 -1.3 0.1 4.9
2004
12/31 0.9 2.9 5.1 1.1 4.0 10.4 0.9 3.0 7.3
12/24 2.0 4.4 5.7 1.1 4.8 10.1 1.4 3.9 7.4
12/17 0.9 3.3 4.1 0.4 4.5 9.0 0.5 3.1 6.1
12/10 0.2 2.7 3.1 0.8 5.1 8.8 0.3 3.2 5.8
12/03 0.9 3.7 3.6 2.8 7.5 10.0 1.1 4.1 6.1
11/26 1.1 3.4 2.9 2.1 6.4 7.8 1.3 4.0 5.5
11/19 1.8 2.9 2.2 2.3 5.7 6.3 1.5 3.4 4.4
11/12 4.3 4.0 3.0 5.0 7.5 7.0 4.3 5.2 5.7
11/05 3.9 2.7 1.5 4.5 6.3 4.6 4.0 4.1 4.2
10/29 0.4 -0.8 -2.1 1.9 3.8 1.3 1.2 1.3 1.1
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