After A Terrific January For Stocks, What’s Next

This has been a terrific January for stocks. Risk-on assets like stocks and oil have risen, while safe-haven assets like the U.S. Dollar have fallen. With the S&P approaching its 61.8% retracement and 200 day moving average, our base case remains the same: medium term is neutral and a short term pullback is likely.

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Let’s determine the stock market’s most probable medium-term direction by objectively quantifying technical analysis. For reference, here’s the random probability of the U.S. stock market going up on any given day.

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*Probability ≠ certainty. Past performance ≠ future performance. But if you don’t use the past as a guide, you are blindly “guessing” the future.

Terrific January

It’s been a terrific January for stocks. The S&P has gone up more than 7%. There’s a common saying for stock market seasonality:

As January goes, so goes the rest of the year

Here’s what happens next to the S&P when it goes up more than 7% in January.

*Data from 1923-present

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From a seasonality perspective, February isn’t as bullish as January for stocks

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Everything is up

It’s not just stocks that are up. All risk-on financial assets are going up, while safe-haven assets like the U.S. Dollar are falling.

CNBC noted this too:

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It’s exceedingly rare for stocks and oil to soar at the same time.

There have only been 2 other cases in which the S&P went up more than 7% in 1 month while oil went up more than 15%, from 1983-present

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As you can see, both cases were quite long term bullish. Let’s relax the parameters so that we obtain a few more sample cases.

Here’s what happens next to the S&P when the S&P goes up more than 5% in 1 month while oil goes up more than 15%

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