Weekly Review

With the first week of 2011 now in the books, it's time to review what happened and look ahead a bit. Here, submitted for your perusal, is a chart of six months worth of the Dow in weekly candles. I've drawn in two different ascending regression trend channels. The first starts at the lows of 2010 at the end of June. The second, narrower, channel starts only at the first week of December, when Santa Claus was still just loading up his sleigh with profits for all the good little traders. Note that the Dow at its current level of 11,675 is right in the center of both channels.

Lately I've been reading a lot of contrarian-style chatter to the effect that the market is "due for a pullback" because "everyone is optimistic" and "the technicals are overbought". I don't know how true any of those are, but looking at the RTC channels, I don't see this big downturn coming in the next few days. Which is not to say it won't happen at some point. I just don't think that point is at hand yet. The RTC is good at verifying the end of a trend. It does not call the top ahead of time.

In fact, the daily Dow is not looking as good as the weekly chart. Although with two consecutive days of losses in the Dow we're still three days from a bearish setup if we get sideways action, a one day drop of just 16 points could do the same. In fact, Friday's action took us below the lower RTC line intra-day. And as of this writing (8:30 PM EST), all three futures are down slightly. Also, note that Monday's are typically not very good in recent times. So given this divergence, while I'm not all that confident about tomorrow, I have to leave the green swing trend arrow in place and take a wild guess that the week will end higher.

Also of interest is this quote from The Stock Traders Almanac:

The last 37 up First Five Days (of the S&P in January) were followed by full year gains 32 times, for an 86.5% accuracy ratio and a 14% average gain in all 37 years.

That's pretty impressive. And in 2011 the S&P closed at 1271.50 with a gain of 14 points, s gain of 1.1%. That's good enough for me. Add to the fact that 2011 is a pre-presidential election year (which historically outperforms) and I'd say we're looking for some more gains by the time Santa Claus comes back to town.

Performance

At the start of every year, the numbers are all a bit askew because we're just getting going, but for what it's worth I finished the first week of 2011 up 0.52%. That would be an equivalent annual run rate of 27.2%, which is in the ballpark of what I've gotten the last two years (a bit over 30%).