So goes January, so goes the Year.
Markets dipped last week as the calendars turned over into a new year. The selloff was primarily led by technology-related stocks. Our team hinted at the possibility of technology-related stocks pulling back last week, stating that “from a charting perspective, a few of the big technology names are at or near resistance levels. It would not be surprising to see them pullback off resistance levels.”
From a seasonal perspective, January is viewed by some as one of the most important trading months of the year. There is an old phrase in investing that goes something like “so goes January, so goes the year.” This so called “January Barometer” is the belief that investment performance can be gauged or predicted by whether or not the month of January is positive or negative. So far, markets are pulling back in January, although Monday saw a positive day for large technology stocks.
The January Barometer, a term coined by Yale Hirsch, is preceded by another commonly heard market phrase, “the Santa Clause Rally.” The Santa Clause Rally, also coined by Yale Hirsch, is the tendency for markets to rise in the six trading days following Christmas, which usually ends in the first few days of the new year. Keep in mind that this “rally” is usually on lower volume (lower conviction) due to the time of year. This year, following an over-extended rally in November and December, the Santa Claus Rally did not happen.
Fellow Chartered Market Technician, Ryan Detrick, posted some stats on different times when the Santa Clause Rally did not occur. Previously, this had only occurred 15 times since 1950. Two of those occurrences were in 2000 and 2008, when the markets experienced significant bearish trends later in the year.
While all these statistics are interesting and phrases like “Santa Claus Rally” and “January Barometer” are easy to remember, keep in mind that they are not laws in markets. Most would tend to agree that they could be coincidental and due to a number of varying factors.
In last week’s update we mentioned that nearly 50% of investors surveyed in the Investor Sentiment Survey were bullish. After the market’s decline last week, we were surprised to see that sentiment remained largely unchanged. In fact, bullish sentiment rose a little bit, while bearish sentiment fell a few points. Sentiment tends to fluctuate in the same direction as the markets. It’s a contrarian indicator in that more investors will have positive views near market peaks, and more pessimistic views at market troughs. Right now, investors are mostly positive.
Chart of the Week
In last week’s update, we stated that we will be featuring a different chart each week along with some technical observations. Last week, we discussed Tesla. We stated that the stock was in a “triangular” trading range that continues to get tighter and tighter. After writing this, the stock continued that pattern.
This week’s chart will focus on Disney’s stock. For the last few years, it seems that Disney has been in the news for all the wrong reasons. They have had controversy at the CEO position (leading Bob Iger to come out of retirement and resume his roll), bad days at the box office, park price hikes and service issues, and political discourse. As a result, Disney stock has declined substantially, but may be looking to turn the corner. Refer to the chart and corresponding points below.
Source: Canterbury Investment Management. Chart created using Optuma Technical Analysis Software
1. The top chart shows a longer-term chart of Disney stock. Since it’s peak in March of 2021, it’s stock price fell -60% to its most recent low, going from $200/share down to around $80/share.
2. The bottom chart shows a zoomed in look at Disney’s stock, from March 2022 to present. Since its peak in March of 2021, the stock has mostly been below its 200-day moving average of price. In mid-November, as the stock approached the 200-day moving average, it experienced a “gap-up,” which means that the stock opened and closed higher than its high from the previous day. This gap-up burst through the 200-day moving average and was the highest volume trading day that the stock had experienced in 3 months. Additionally, there appears to be what is called a “golden cross” where the 50-day moving average of price is crossing above the 200-day moving average of price. This often indicates a long-term change in trend.
3. After gapping-up through its 200-day moving average, the stock has consolidated and “pulled back” to that moving average and is now testing it for support. This is perfectly normal price action that happens after a significant move. From a technical standpoint, this appears to be a “falling wedge” continuation pattern, where you see an upward move, followed by a consolidation that gives the appearance of a wedge, and continues higher movement (this part has not happened yet).
4. The volatility of Disney stock is now at its lowest level since November 2021, according to the Canterbury Volatility Index (CVI). Falling CVI is a sign that risk is decreasing. In other words, the stock is trading more rationally.
Disney stock is one that has taken a lot of heat, both fundamentally and technically. Now, it is showing a little bit of positive momentum and is beginning to turn the corner. This is a stock to keep a close watch on. Will it continue to hold support at the 200-day moving average and breakout to the upside of its recent consolidation pattern?
There is a lot of commentary out there surrounding the month of January, Santa Claus, and the new year in general. Keep in mind that many of these statistics are coincidental, and do not give much indication about the future. Markets fluctuate on supply and demand. Recently, markets have gone from one extreme to the other. Investor sentiment has also fluctuated from one extreme to the other. Emotional investors will make for emotional market noise.
We continue to look for opportunities within the markets to maintain portfolio efficiency. This includes both ETFs and individual stock securities. After the extreme move to end the year, markets pulled back some to end last week. Now, on Monday, technology stocks led a market bounce. It is important for an investment portfolio to maintain low and consistent volatility, particularly when the markets feel unpredictable.