WONDER WHAT LINE HE IS ON?

I remember when the great one was running his campaign and pledged to go through the Federal Budget line by line in an effort to eliminate wasteful spending. The thought occurred to me this morning that I wonder what line he might be on now after 2 years? Is he still in the preface? Perhaps the Table of Contents? I think he just did a Select All, then clicked on increase then hit save.

As you can see from the chart above that I fished out on the web just to show a quick snap shot of things, high deficits are not bad for stock prices. You can see in the last 10 years how clear it has been, when deficits rise so do stock prices. When they decline, along come stocks. This is where people who study economics and try to apply those principles to stock prices get lost. Deficit spending has becomes stimulus for stock prices. When they are injecting money, that money goes to where it will get the best return, and that is often stocks. At times the PPT makes another spot more attractive like real estate for example, or the metals in the last few years. When you can borrow money cheap and invest it and make more, that is basic economics.

If you research the great depression you will find that we actually had a surplus for part of that period of time. Most people would not expect to find that I bet. I am not arguing that deficits are a good thing, they are not. However, this is a trading blog so the point I am making here is that you should not get too bearish on stock prices or the market as a whole just because our deficit is increasing. It really does not have a correlation, or if anything, it is in the opposite direction of what is commonly espoused.

That being said, I am as readers know, bearish for January in quite a few markets. I do not as of yet see a trigger to get short the stock indexes. There is seasonal down bias as I have been discussing in January and the first pocket of that seems to be at the end of the first week to the beginning of the second week. That is a window to look for a sell pattern if one has not developed already. January has not always been a seasonally weak month, that is a more recent development. Seasonals like all cycles tend to move around some, so you have to keep that in mind.

So Goes January, So Goes the Year

Here are the results in the SP 500 since 1988 buying the market on the first day of Feb, if January closed up for the month and exiting at the end of the year. This is the so called January effect and you can see that this has been a good harbinger for the year overall. What is also interesting is how small the draw down max is on the winning trades. Even the largest loss is not that much at 11k considering this is just holding for a whole year with no stops. In summary, I am bearish for January beginning at about the end of week 1.  That is a short term bias and I do not know if that will be correct, or even if it is, if there larger implications. However, if the month does happen to close up, the longer term view has to shift back to the long side.

Do your own research on this it is worth the trouble.