Monday, January 26, 2015

The January Effect

According to the model from 1928 to 2012, if the DJIA can end the week/month positive (above 17,823) and the S&P 500 above 2058, the average annual return for stocks should @10.9%, the consensus opinion!! Markets were up 78% of the time. Failing that, even a down jones could end the year up 2.8%, about 50% of the time.
According to the above chart (my latest technological breakthough) although we seem to be in a deflationary spiral - locally as well as globally- the 2-year Treasury rate has risen steadily for the last 12 months. The TIPs ETF at the bottom of my grid (below) has also been rising, but well off the 2012 highs.  
Even the Patriots balls seem to be in deflation!
In another great article from Barron's by Steve Sears, the Option guy, he posits that 2015 will bring flat Volatility in the SPX, but a higher one in the VIX. This bodes well for the return of my DITM (Deep-In-The-Money) covered call strategy that did well before the Fed markets kicked in, lowering the premium in call options - hence the lower returns. Although the strategy has the benefit of hedging (selling a call lower than buying the stock), if it really drops, it can erase much of the lesser gains of successful DITM trades. As they say, (Fed) stocks ride the Escalator up but take the Elevator down!!
The stunning Sentiment Indicator last week was the sharp, record-breaking rise of Commercial shorts in Gold, even though it has been climbing lately, above $1300. I would hope that eventually it would cause short covering/buying. On the contrary, CEO Insider Selling (by Sector), and other Insiders, have not shown the madness of the prior year. They dropped from 73 to 1 two weeks ago, down to 18:1. Finally, the AAII Bull/Bear survey moved quite a bit to the middle again (Bullish FOR the markets)
Here are the numbers:

Date> 1/23/2015 1/16/2015
Indices: DJIA  17672 17511
  NAZ  4757 4634
SPX  2051 2019
WklyVolume (Bshs). naz/ny…. 7.3/3.3 9.9/4.4
Specul.Ratio hi=bullish 2.21 2.25
Sentiment: put/call-CBOE  62 70
VIX>50-alltmlow=8.8 16.7 20.9
Advance/Dec-NYSE.. 2083/1152 1448/1796
Weekly Net: 931 -348
     Cumulative: 165001 164070
Weekly  NYSE hi/low… 516/165 479/339
New Hi's/Low's Nasdaq h/l 174/243 207/294
McClellan  Oscillator 16 -2
McClellanSum .+750/-1000 257 227
Newsletter Inv.Intel -Bull:tues 49 48
Surveys Bear:-5yrs 17.4 16.3
AAII  -Bull :wed. 37.1 46.1
Bear  30.8 21.5
COT:SPX w/w large/small (net)k 4k/12k 1k/19k
COT:gold  comm.hedg long-short.000 (178k) (138k)
CEOinsider selling .18:1 .25:1
off.&bd b/s.vs. 10% holder b/s .160:30 160:20
3-box rev Bullish%-  64 62
US equity -ICI Fund Flows WeekDelay 0
MMF flows Change in $B (1.0B) (9.0B)
MargDebt- top (300M) monthly 
ETF:mthlyEqty/ Int'l/Bond-$B
2-yr Tsy Yield: Inflation 0.49% 0.49%
TIP (ETF) Inflation 114.17 113.8

With record numbers of dollars coming out of Money Market Funds, mostly into the crowded trade of short term bonds, anyone who has a minimal knowledge of covered call options and/or an interest in hedging stock market exposure might want to check out: for an alternative strategy that is low-risk as well as highly rewarding. For those of you wanting more details and actual trading results, a new book is available for $14.95 at Zero (IN)Tolerance

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