EC January Effect

With the major averages at or near new highs, the bulls must be wondering how much higher they can go. Leaving the prognostications and guesses to others, we look at the current situation in an effort to set some "what if" parameters. Seasonally the January record shows small capitalization stocks tend to outperform creating what has become known as the January Effect. More follows in the Market Review along with a bit more about Bitcoin.

S&P 500 Index (SPX) 3756.07 gained 53.01 points or +1.43% last week while making several new closing and intraday highs including Friday, the last day of the year. In terms of sectors, three of the four days were Risk Off including Friday as it made an intraday high at 3760.20 with less than average combined daily volume of 1.6 bn shares. The Georgia Senate election tomorrow could qualify as one of those unexpected fundamental events, so watch for a close under Friday's low at 3726.88, at the junction of the upward sloping trendline from last November's low. Should that fail look for the 50-day Moving Average to provide support now at 3585.48.

iShares Russell 2000 ETF (IWM) 196.06 slid 2.95 points or -1.48% last week after making a new intraday high at 201.18 on Monday. Giving up the "decider" title and closing below the upward sloping trendline from the November low, the modest decline likely reflects portfolio adjustment selling of underperforming stocks before year-end, something called "window dressing" in the trade. After all, most portfolio managers want to avoid the embarrassment of showing an energy stock in their year-end report. For example, the Energy group placed at the bottom, or near bottom, of the sector list three out of four days last week. However, the January Effect probably won't help since that phenomenon referrers to small less liquid capitalized stocks.

Invesco QQQ Trust (QQQ) 313.74 gained 4.18 points or 1.36% last week to end right on the upward sloping trendline from the November low. In the event of an unexpected decline, the zone between 300 and 295 should provide substantial support from both previous highs and the 50-day Moving Average.

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Disclaimer: IVolatility.com is not a registered investment adviser and does not offer personalized advice specific to the needs and risk profiles of its readers.Nothing contained in this letter ...

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