Morning Comment: One Day Does Not Make a Trend....S. Korea....Gold.

The S&P 500 Index fell 1.48% yesterday...and in the 21st century, there have only been three other years where the first day of trading gave us a decline of more than 1%. Those years were 2001, 2008, 2015. The average return in those previous three years for the S&P 500 index was a loss of 17.42%. 2008 gave us a loss of 38.5%, 2001 saw a loss of 13%, and in 2015 the SPX fell 0.73%. Therefore, the best we can hope for in 2021 is a flat stock market...and the odds that the market will end the year in bear market territory are quite high.

Of course, that last statement is utterly ridiculous, but since January is such a big month for market trivia, we thought we’d have some fun by highlighting a little trivia ourselves..........We will also highlight that 2008 was that last year that Tom Brady did not play for the Patriots (due to an injury). A coincidence? We think not.

Seriously though, yesterday was a rough day for the stock market, but we are a long way from raising a big yellow warning flag on the market. Volume was quite strong...with the composite volume at almost 3.5bn shares. That was much higher than any trading day in January of 2020...except for the last day of the month. We’d also note that breadth was pretty more than 5 to 1 negative for the S&P 500. Having said this, the S&P was able to retrace 40% of its midday losses by the close. Also, the breadth at the midday lows was more than 10 to 1 negative, so it improved very nicely in the afternoon.

In other words, there were certainly a few things to be concerned about in terms of yesterday’s action, but we’re going to have to see a lot more downside follow-through before we can get overly concerned......We will see if the results from today’s Georgia run-off election has any impact as we move through the rest of the week. (However, it was interesting to see that Carl Icahn shares our view that the market could/should see a deep correction at some point in the coming months.)

Since a lot of what will take place in the second half of this week will depend on those results out of Georgia, we’d actually like to talk about one stock market from the other side of the world...South Korea. Their KOSPI index has seen another strong rally leg over the past two weeks. This means it has rallied a whopping 32% over just the past two months...and now stands more than 105% above its March lows! This is great news, but it has also taken its RSI chart to a level that has only been exceeded once since the before the financial crisis. The RSI chart has moved above 83. The only other time it reached a more extreme level was 2015...just before it rolled over and fell 15%. (First chart below.)

Given that South Korea is such an big exporter, its economy and its stock market has been a good indicator for global economic growth in the past. Thus the strong rally in the KOSPI could certainly be seen as a bullish development. However, since the rally has become SO extended, investors might want to be careful about buying stocks in that area of the world over the near-term........We’d also note that any sort of meaningful pull-back in this stock market could have an impact in other global it’s not out of the question that the drop in the stock market in the U.S. yesterday could become something more compelling sooner than we have been thinking

Let's shift gears a bit by highlighting that gold broke above the first key resistance level of $1,990 that we mentioned late last week. This morning, it is bumping up against the second level of $1,950 this morning. (If you will remember, that $1,950 level was the November highs.) A meaningful break above $1,950 level would take above both its multi-month trend-line from August AND give it an important “higher-high,” so it would definitely be a bullish development on a technical basis. As always, we don’t want to get ahead of ourselves. We’ll HAVE to see the yellow metal break above that second level before we get any confirmation, but the potential is DEFINITELY out there. (Second chart below.)

Finally, we'd just like to mention that I will be presenting at the MoneyShow Virtual Expo next week. It runs from January 12th to the 14th and I'll be presenting on Wednesday the 13th at 10:40. I hope you will join me on that day. You can click on the link below to find out how to take advantage of the insights from all of the speakers at next week's Expo. Thank you very much.

Matthew J. Maley

Managing Director

Chief Market Strategist

Miller Tabak + Co., LLC

Founder, The Maley Report

275 Grove St. Suite 2-400

Newton, MA 02466


Although the information contained in this report (not including disclosures contained herein) has been obtained from sources we believe to be reliable, the accuracy and completeness of such information and the opinions expressed herein cannot be guaranteed. This report is for informational purposes only and under no circumstances is it to be construed as an offer to sell, or a solicitation to buy, any security. Any recommendation contained in this report may not be appropriate for all investors. Trading options is not suitable for all investors and may involve risk of loss. Additional information is available upon request or by contacting us at Miller Tabak + Co., LLC, 200 Park Ave. Suite 1700, New York, NY 10166.

Posted to The Maley Report on Jan 05, 2021 — 9:01 AM
Comments ({[comments.length]})
Sort By:
Loading Comments
No comments. Break the ice and be the first!
Error loading comments Click here to retry
No comments found matching this filter
Want to add a comment? Take me to the new comment box!