The Death Cross

The Holiday Rally that Wasn't - and Worse.

As recently posted, I took a large position in DIA (Dow Jones Industrial Average Index ETF) on 11-26-07. I sold half of that position on 12-14-07 for a 5% gain and the other half on 1-9-08 for a 3% loss. There was no holiday rally, and it gets worse.

The Dow's 50 day moving average has dropped below its 200 day moving average creating what's known among market technicians as the death cross. The Dow has also dropped below support at 13,000. I think we are in the beginnings of a bear market that may last for 6-9 months or longer.

I use 20% of my retirement portfolio for trading; I like to take advantage of inconsistencies and trends in the market. That portion of my portfolio is in cash and it may stay there for a while. I have not let the DOG (Proshares Short DOW 30) out, but I may.

The January Effect

The January effect proposes that stocks gain in the first five trading days of the year (correct 70% of the time). Average first week of January returns...

Dow: 0.8%
S&P 500: 0.8%
Nasdaq: 1.4%

The January Effect is not to be confused with The January Indicator or Barometer which proposes that as January goes, so goes the market (correct 90% of the time). Average month of January returns are...

Dow: 1.1%
S&P 500: 1.5%
Nasdaq: 3.5%

Compiled from over 100 years of data for the Dow, 75 years for the S&P 500, and 35 years worth of data for the Nasdaq.

Unrelated but interesting: The Dow has had positive returns 17 of 25 presidential election years. I'll have more about the Holiday Rally that wasn't later.