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"Out-of-the-Gate" Dynamics



By our reckoning, since 1915 there have been only 11 years that began with the first two days in the Dow Industrials as downers:

It looks like there is generally little significance with a lower market in the first two days of the year. Looking at the numbers:

2005 has started out of the gate as one of those years that begin with 3 consecutive declining sessions. There have been 7 years with at least the first 3 days declining for the DOW:

Interestingly, the average numbers for the 12-month performance in years starting out with "3 or more consecutive days down" is better than the average in years starting out with "2 or more consecutive days down." We're not talking about a great sample size here, but the main point is that a string of losers at the start of the year has no statistical implication for the year as a whole. In fact:

As the table above shows, the three years that sported the longest opening string of daily losers average even better numbers for the year as a whole.

More important to the market, in our opinion, is poor sentiment and poor leadership:

One way we define poor leadership is when technology issues lay an egg as the market tries to recover. The chart above is a 5-minute chart of yesterday's action in the Semiconductor Holders ETF (SMH.) It puked into the close.

Moreover, in our database, there are almost twice as many Type 4 long squeezes (566) than Type 1 short squeezes (287.) That is a function of prices pulling back in an environment fraught with euphoria.

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