I was going to give this post the subject line "Shit Or Get Off the Pot", but I was afraid I would offend someone (oh, wait a sec…….oops.) In any event, the reason for either title is easy enough to understand with one glance at the S&P 500 for the past four freaking days:
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Originally published on TheTechTrader.com.
Boeing's long-awaited debut of the DreamLiner seems to be going over – if you'll pardon the phrase – like a lead balloon. As airlines have decided to ground the new plane, what with its electrical malfunctions and unexpected fires, the stock of Boeing is likewise succumbing to a bit of gravity. The technical problems with the chart started months ago, when the supporting trendline was violated. I'd say the highs may be in for this stock for a while.
The January Effect, like its equally annoying cousin, the
Santa Claus Effect, is another delightful phrase to remind us all to continue
buying every equity that isn't nailed down.
So let's look at this current January to see how things are
progressing. First, buyers are supposed
to take advantage of lower December prices.
Check. Second, small cap stocks
are supposed to outperform in this environment.
Check. Third, the effect is
supposed to be strongest in the third year of a President's term (2011). Check.
I'd like to examine the last two Januaries to try and give some guidance
as to how this winter season will play out.
As usual, I'll be presenting charts with numbers, and as always, the
numbers are just markers for my points, not waves.
The third year of the President's term gave us a January
Effect that was already well underway.
1. The November high just
slightly exceeded the high for the year.
2. Consolidation to give bears
hope for an end of the year selloff.
3. Break to new highs. 4. An uninterrupted,
three month grind straight higher that absolutely blew the doors off the prior
I consider myself a relatively "pure" chartist, not allowing fundamentals or folklore to influence my decisions. But with Chipotle, it was more than just the chart that compelled me to short it (as well as buy puts, which is an act I take upon myself literally once or twice a year, versus the thousands of equity trades I do).
As I have often cited here on Slope, I think Chipotle food sucks out loud. The offerings are completely middle-of-the-road, and the pledge on their menu that some (some!) of their ingredients are probably organic doesn't impress me. Nor does the fact that they charge 50% more for the same food that I can get at any given Redwood City joint (all hail Los Gallos!) Setting aside the fact that mom 'n' pop burrito joints have much tastier offerings.
Anyway, before the open, I was delighted to see their stock down about 10% pre-market, so I dumped the put and covered the stock right at the open. I think much, much lower prices are ahead, but I'm going to wait for a decent re-entry point before I refry these beans once more.
I posted a chart of the daily SPX early last week with the observation that of the last twenty times that SPX closed more than ten points below the daily upper bollinger band, support at the middle bollinger band was hit sixteen times before the upper band was hit again. To that extent the odds are still with the bears for the moment. Middle bollinger band support is now at 1447 and still rising, and it therefore isn't far now to reach it either. While we watch this sideways action however, the potential upside within the SPX rising channel and below the upper bollinger band is opening up, and resistance on those is now in the middle to high 1480s. That needs to be borne in mind from a risk/reward perspective: