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Flame Throwing Trade for Shovel Worship

Flame Throwing Trade for Shovel Worship

by MoleJanuary 4, 2010

by Michael Davey

In general I don’t like predicting. So sticking my neck out publicly before a new year is not my typical style.

Hence my quiet nature last week.

I do like a good smack of process-of-elimination logic though, and now that some of the year is taking shape (and it is clear and one-sided thus far), I’ll go ahead and outline some of my thoughts; digging my way into (or out of) trouble.

  • January is one of the strongest months, seasonally; especially for growth stocks.
  • Sometimes January will start straight down; corrections have on occasion begun right out of the gate in a new year.
  • The Day-1 action tends to suggest the action for the opening week, historically.
  • The action thus far on Day-1 is firmly positive with: very strong breadth; rising commodities and falling dollar; strong percentage-gains in equities, commodities and currencies; and a significantly declining VIX.
  • On the less than positive side – total volume is healthy, but not extreme; put-to-call numbers are low (negative); and the VXN (volatility for NDX) is only modestly lower.

Using my lucky-stupid, platinum-pointerless logic, I would say with the action clearly in the firm and the market not starting out straight-down, I’m going to push push push the long side now for the time being.

Looking further, the Russell 2000 is the leading major index on the day and is making fresh recent highs (and the R2K contains a lot of the growth stocks which we know from above tend to out-perform in January months).

Conclusion – don’t do what I do, but I’m getting long the R2K (as well as a handful of growth names), until further notice.

Now I know many here will look at the above chart and find a megaphone of reasons why I am going to be buried. Don’t fear for me though – I have a way out!

I’m too nice to say what I’m thinking, but good luck to us all in 20TEN…it should be a wild ride. Let’s make the most of it.

About The Author
Mole created Evil Speculator amidst the chaos of the financial crisis in early August of 2008. His vision for Evil Speculator is a refuge of reason, hands-on trading knowledge, and inspiration for traders of all ages and stripes. You can follow him and his nefarious schemes at various social media waterholes below.