As Goes January 1984…

Michael Davey here…

FWIW, FBOFW, etc., I mentioned in a previous post that this January was playing out a bit January 1984. At the time, my reasoning had more to due with the way we were churning – an early rise in the year without great volume, several sessions of testing highs, mixed with a big-volume session-decline associated with better than 3-1 negative breadth (which should not happen in a healthy January; as seasonal strength, inflows, etc. should more than keep those kind of negative internals at bay; it did not).

Anyway, now that it’s the 22nd and I’m still thinking about 1984, we may as well amuse ourselves with a peak at this year, overlayed onto the 1984 market (big thanks to Ultra again, for painting the pretty graphics; since i don’t keep the pencils very sharp around here)…

This is no incredible fractal, certainly, but that’s not what I’m after. The conclusion I want to push here [actually wanted to push it before we broke the trend-line, but Ultra was busy with other stuff =] …is a suggestion – which is that there need be no significant bounce at this time (for a rally gone bad in the month of January). There is historical precedent for further straight-down-ugly [more or less].

Further, knowing that Monday has been the hotbed of rally activity since the March lows – what should we expect this Monday, now that the trend has changed?

Anything is possible – especially more weakness. But I’m not going to get hurt if we bounce instead (at least that’s my plan, so don’t follow along with my words and get snuffed short whilst I skidder to the side)…Be safe (i.e. don’t do what I do).

But personally, I do not want to price myself out of all shorts (I’ll lighten at times, surely); Since the best opportunity would be a straight-down affair, if I am short, then why do I want to miss a home-run if that is what is connecting?

Did that make sense? Can’t teach this stuff (tough to bum a simple overlay chart for one thing). But there is a rhythm to a down market.  I’ve learned not to anticipate bounces so much as to be sure and sell strength.

Good weekend!