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(1/26/08) It was another extremely volatile week for the
market as the major averages got very close to key longer term support levels as
I will talk about below. So far for the month of January the S&P
500 is down 9.3% with just 4 trading days left in the month. The worst
performing month for January was in 1990 when the S&P 500 finished with a
loss of 6.9%. Since 1960
the S&P 500 has finished with a negative return in January only 17
times as shown by the table below. When the S&P 500 has finished
with a negative January return there have only been 3 years (2003, 1982 and
1968) in which the S&P 500 has ended the year with a gain greater
than 5%. Thus in 14 out of 17 years (82%) the S&P 500 has
finished the year with either a marginal gain (5% or less) or a loss.
The worst performing years were in 1974 when the S&P 500 finished down
nearly 30% for the year and in 2002 when it lost just over 23%. Finally
the Average Yearly Return for all of the years combined was -4.7%.
S&P 500 Negative January Performances versus
Yearly Performances since 1960
|
S&P 500
|
Monthly
|
Yearly
|
|
|
Return
|
Return
|
|
January-05
|
-2.5
|
3.0
|
|
January-03
|
-2.7
|
26.4
|
|
January-02
|
-1.6
|
-23.4
|
|
January-00
|
-5.1
|
-10.1
|
|
January-92
|
-2.0
|
4.5
|
|
January-90
|
-6.9
|
-6.5
|
|
January-84
|
-0.9
|
1.4
|
|
January-82
|
-1.8
|
14.7
|
|
January-81
|
-4.6
|
-9.7
|
|
January-78
|
-6.2
|
1.0
|
|
January-77
|
-5.1
|
-11.5
|
|
January-74
|
-1.0
|
-29.7
|
|
January-73
|
-1.7
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-17.3
|
|
January-70
|
-7.6
|
0.0
|
|
January-69
|
-0.8
|
-11.3
|
|
January-68
|
-4.4
|
7.6
|
|
January-62
|
-3.8
|
-11.8
|
|
|
|
|
|
Average
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Return
|
-4.7
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As for the major averages all three (Dow, Nasdaq and S&P
500) have formed bearish Head and Shoulder Top patterns. In addition
all three failed to hold support at their Necklines which led to another
substantial move lower. 
Meanwhile if we look at a longer term chart of the major
averages their Necklines coincided with their 23.6% Retracement Levels
calculated from the late 2002 lows to the late 2007 highs which were around
12500 (Dow), 2400 (Nasdaq) and 1375 (S&P 500). As
the 23.6% Retracement Levels failed to hold this was followed by a gap down to
near their longer term 38.2% Retracement Levels. The Dow got within 130
points of its 38.2% Retracement Level this week which is near 11500. In
the weeks ahead it will be very important for the Dow to hold support at or
above the 11500 level. If the 11500 level were to be taken out then things
would get even uglier as the next support level would be at its 50% Retracement
Level near 10600 (point A). 
The Nasdaq got within 10 points of its 38.2% Retracement
Level this week which was around 2190. Just like the Dow in the coming
weeks it will be very important for the Nasdaq to hold support at or above the
2190 level. If the Nasdaq were to drop below the 2190 area then its next
area of support would be at its 50% Retracement Level near 2000 (point B). 
As far as the S&P 500 it got within 3 points of its 38.2%
level which was at 1267 and it will be important for it to hold support near
this level in the weeks ahead. If the S&P 500 were to take out the
1267 level then its next area of support would be at its 50% Retracement Level
near 1170 (point C). 
Although we may continue to see an oversold bounce in the
near term as the market has become very oversold at some point we may see a
retest of the lows made on Wednesday. Once the retest occurs that will
likely give us a clue to whether the recent lows will end up being a significant
bottom or whether the major averages will eventually go even
lower.
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