Stocks opened the new year on a strong note, but much of that was due to the big headline of the month, the avoidance of the fiscal cliff, along with new pension money that always supports the market at the beginning of the year. However, technically, it was a great week for stocks with two days of back-to-back 10-to-1 up volume days. According to Lowry Research, the last time we saw that was in January 1987, and it led to a 24.5% run to a peak in early April.
But can this explosion of buying be sustained? Longer term, absolutely, since Congress and the Fed have the ability to keep shoveling money into the system and Q4 earnings are expected to be strong. However, the near term is questionable since Thursday’s and Friday’s volume shrank to the average volume of last year and RSI non-confirmations exist on the Russell 2000 and S&P 500. This condition may be telling us that last week’s gap was an “exhaustion gap” and that stocks could be at risk of a shallow sell-off and a close or partial close of open gaps.
With that in mind, keep an eye on the support areas of each chart — if penetrated they represent selling triggers. But be careful out there. This is still a highly volatile market that is unduly influenced by daily headlines. Short sellers should always use stop-loss orders.
Here is our list of stocks to sell in January: