Back on January 16th I wrote a post titled "The January Effect" simply stating that the beginning of 2013 looked absolutely identical
to the beginning of 2012. Given the
selloff over the last week I wanted to go back and see if the 2012 analog was
broken and if it was time to wave the "all clear" flag for the
bears. Bottom line, the analog is in
full effect and it looks like the bulls have another full month of smooth
sailing ahead. Again, I'd like to
present the technical analysis via charts with numbers (the numbers are
markers, not wave counts).
2012
The 2012 analog started on December 19th which is marked by
Point 1 and ran a net 14.2% before any meaningful selling marked by Point
2. The pullback, marked by Point 2 to
Point 3 dropped the market 38 points representing a 2.8% correction. This correction is INCREDIBLY important in
the analog analysis as the 2013 pullback came in at a virtually identical 3.0%. The correction occurred 52 days into the
analog and the total analog lasted 71 days.
By the end of the run, Point 4, the S&P had gained 216 points or 18.0%. Now lets explore how 2013 is playing out.
2013
The 2013 pattern started on December 31st with the
resolution of the Fiscal Cliff. This is
marked by Point 1. The market ran 9.5%
without any meaningful pullback to Point 2.
The Point 2 to Point 3 correction dropped the market 46 points or
3.0%. Again, virtually IDENTICAL to
2012. The correction occurred 35 days
into the analog. If the analog holds
true, and I have zero reason to think it will break, the S&P should print
1,600 before the end of the run.
Simply, if the analog ain't broke, don't fix it. A few notes about the 2013 run. The 2013 correction occurred after a smaller
percentage gain and also happened in a faster timeframe (35 days into the run)
than it did in 2012. Honestly, I think
this is important for the final projection.
Implying 2012's 18% gain would place the end of the 2013 run at 1,650. I really don't see that number being
hit. The 2013 run seems to lack the same
power as 2012. However, as of writing
the S&P is at 1,510 and my target is 1,600.
Plenty of more room to the upside.
Now an olive branch for the bears. Analogs work until they don't. If the S&P breaks 1,470, tear this post
up and throw it in the trash. Until
then, the trend is up. As Yogi Berra
said, "its deja vu all over again."
