If January Is Positive, So Is 2024? It Depends Upon 3 Remaining Days

The Interrupted January Effect

The SPDR S&P 500 ETF (SPY) has made a consistent advance from a trough at 410.68 closed on Oct 27 to:

1) +1.9% at 418.20 on Oct 31, 2) whopping +9.1% at 456.40 on Nov 30, and 3) decent 4.4% at 476.31 on Dec 27, 2023.

When going into 2024, we reasonably expected a positive reading for the first one or two days, but unfortunately, we had a 3-session-negative record on Jan 2, 3, and 4, 2024. As a consequence, bears cheered up, while bulls were gloomy.

Santa Claus Rally counted 7 days from Dec 22, 2023 to Jan 03, 2024. We had 4 pluses on Dec 22, 26, 27, and 28, and 1 minus on Dec 29, 2023. A trick is the end of the year or the starting year does not interrupt the counting. We had the negative on Jan 2 and another negative on Jan 3. Therefore, we barely had the Santa Rally by 4 pluses vs. 3 minuses.

The Wall Street Journal reported that we had 3 straight days of negative S&P on Jan 2, 3, and 4. Alas, this was not a 3-day matter but we had actually 4-day-(Dec 29, Jan 2, 3, and 4)-consecutively-negative sessions. Hence, indeed the pessimism mounted much more sharply in the new year.

The Fantastic Feature of January Data, as of Jan 26 [F], 2024

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Starting in January, 3-negative columns in a row or 4-columns, including Dec 29’s minus, the investment space was tilted heavily to the bear’s favor. But, as shown in Table 1, bulls and bears were making a tight battle day after day, until Jan 17.

Among 11 days, the share of bears vs. bulls was 7 vs. 4, in other words, the bear’s share was almost double of bull’s one. Among 7 days From Jan 18 to Jan 26 (Friday), however, it was an eye-popping one-side printing, 6 vs. 1, in the bull’s favor. It was really a dramatic change in the direction from a one-side bear run to an even footing of both aisles.

3 days from Mon (29) to Wed (31) are critically important. Because not only the January Effect is concluded but also the FOMC (Federal Open Market Committee)’s two-day meeting. All investors (except me who will continue trading) will listen to the Fed Chair Jay Powell’s press conference at 2:30 p.m. ET.

Politics vs. Economics and Investing

Investors are better off not following daily events of politics. As a voter, nonetheless, they are concerned about their choice of a party or a candidate. Originally, economics and politics were closely intertwined together as a political science.

In my view, this year, voters seem to be in a similar situation as eight years ago, when voters didn’t vote for a better candidate, but for a “less worse” one. Good luck to every voter.

To get the source of the PPO (Paper-and-Pencil Only) approach, please click this.

Pulse Check #1 by The TDI (Trifecta Distribution Index)

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In Table 1, 10 days out of 18 days (Jan 2 thru Jan 26, 2024) were shared “P” and “m” each day, so only 7″P” and 3″m” readings because a trifecta requires all 3 components (SPY, DIA, and QQQ) have the same sign, either “P” [plus] or “m” [minus].

Table 2 exhibited a high level of bullishness in Dec and Jan: Bulls vs. Bears was 19 (= 12 (Dec) + 7 (Jan)) vs. 8 (= 5 (Dec) + 3 (Jan), 2 times more, as of Jan 26, 2024. We want to stay on the plateau as long as possible. Therefore, any one-sided score is not good in either bull’s or bear’s favor.

It’s still pretty positive, keeping a high level of 2 times over bearishness.

Pulse Check #2 by The SDI (Sector Diffusion Index)

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The TDI has nicely reached readers. The quite positive response encourages me to explore capturing the rotation trend of 11 Sectors of SPY, comparing with other equal-weighted ETFs, Russell 2000 ETF, and mid-cap ETFs.

The PPO approach recently has contributed to 1) the Momentum/Trend Analysis, and 2) The Trifecta Distribution Front in particular. As the third contribution, the PPO approach is to monitor the stock-market breadth and turning direction.

Uptrend, Trifecta Front, and Diffusion Index have a common thread of the PPO approach which distinguishes any movement with a plus (“P”) and a minus (“m”) without considering the size differences.

In any special situations with any external shock such as the oil embargo or COVID-pandemic or internal impacts of over-tightened monetary policy and undue fiscal expansion, the PPO approach has worked to fill the vacuum of traditional approaches.

Every day 11 SPY sectors together make a Diffusion Index [“DI”] which oscillates between 0% to 100%. If all 11 sectors rose, the DI is 100%, and if all fell, the DI is 0%. The DI indicates market breath which means how tightly the components stick together.

In Dec the SDI was 61%. In Jan, it was 51%, as of Jan 26 [F]. By the same token, we had an optimal level of pulse.

Pulse Check #3 by the Uptrend

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In Table 5, Bulls vs. Bears was 23 (= 14 (Dec) + 9 (Jan)) vs. 15 (= 6 (Dec) + 9 (Jan). Bears shortened the distance in Jan a bit. But it’s still positive.

It’s a help to reduce the pulse a bit, so it’s welcome.

The Market Perspective for 2024 and Beyond

The market and economy have performed prudently since late 2023, and as of Jan 26, 2024, as we traced with various indicators in the text.

Bears are growling in the bear camp, but Bulls are quiet with compliance in the bull aisle, although both bears and bulls have been busy with the instant (in a few seconds or a few sessions) trading which is not only exciting but very profitable and risky.

According to this, the SBM (Super Bull Market) started in March 2009, and the GE (Greet Expansion) started in June 2009. The SBM has not been stopped by COVID-19 related NBER “Recession” (or ensuing bear market). The GE also has continued to date, as asserted in my several posts.

The current bull plateau is expected to continue until 2025 (or 2026) as I predicted several times. As a result, we would expect a “Bear Market” to end the SBM in 2026, and about six months later, a “Recession” to end the GE.

As a consequence, most importantly, we finally get the right business cycle sequence back, by seeing a “bear market” as a leading indicator comes first, and then a “recession” as a coincident indicator follows.

Conclusion

The pulse of the plateau was optimal in the TDI (Trifecta Distribution Index), in the SDI (Sector Diffusion Index), and in the Uptrend as well. The 3 indicators lowered the strength of the plateau a bit, resulting in longer life cycles.

The remaining three days in January – Monday (Jan 29). Tuesday (Jan 30), and Wednesday (Jan 31) – are very important to conclude the questionable January Effect, and to predict the Bullishness of the year.

We carefully adjust our investment strategy, considering the resilient economy, the historical evidence of the election years, and any financial distress from a couple of the ongoing regional conflicts.