January Barometer is Sour but ISM is Semi-Sweet

January 2009 will be a month to forget for the Fundies. There worst nightmare came true as the SPX dropped 8.6% for the month, which is the worst January drop on record. The saying in the market is "as January goes, so goes the year." The market move in January usually predicts the bullish or bearish nature of the market for the rest of the year. The January Barometer has been 80% accurate since 1950. The Fundies took a look at their "realistic" (not rose-colored) outlook for the rest of 2009 and shuddered. Therefore, the European markets are down, and the U.S. Markets pre-market futures are down sharply.

The Dow is set to gap down below the 7,950 - 8,000 support levels. The only thing that might have slowed the momemtum was the ISM Index, which doesn't report until 30m after the open. Normally this would be a no-brainer 2 point drop on the DIA as the Dow heads towards 7,750 (and maybe even as far as 7,500 over the next several days). But the ISM report is a big enough deal that is could stop the momentum if it comes out better than expected.

Here is a chart of the Dow:
(click on image to enlarge)

I removed the Beardicat Zone because the Bulls are finally coming to the full realization for what the rest of the universe has already known, the fundamentals are continuing to deteriorate, especially in the Jobs market and the Real Estate market.

This means we have a "look out below" warning. I'm not looking for a catastrophic implosion, but the only thing standing in the way of a 200 - 300 point drop today is the ISM. So keep a sharp eye on things, as usual. There may be some put opportunities right out of the gate, especially on some wiggle, but watch the market action closely at the ISM report. I won't be surprised to see a gap down at the open, then some wiggle back on "ISM hope." The pre-market futures have been climbing back, so the wiggle up after the gap open seems likely. This has been the norm when the foreign markets have been a part of the pre-market catalyst. I've said many times that the U.S. markets drive the world, not the other way around, so our market is shaking off the foreign catalysts and trying to decide what is wants to do. I speculate that the market will take it's final cue for the day after the ISM report.

12:15 pm MT: Intra-day Update: The ISM did indeed pivot the market as I speculated above. The reading of 35.6 was in that 35 area that I talked about in VC. It was the number that, if we got it, I speculated it would prop the bulls enough to hold the market from imploding.

Here is an updated 30m chart of the SPX:
(click on image to enlarge)

Selling momentum is slowing down in the downtrending "period" on the 30m charts. I speculate that we will get an intermediate term "period" of consolidation now on the 30m charts. That means I speculate the next leg down is off the table for today, and perhaps tomorrow. We'll see what shapes up next, but the next natural catalyst would be the ADP report on Wednesday. So far, the ISM is propping up the market (from imploding at least).

12:28 pm MT: Intra-day Update: The SPX rolled down to 817. It's possible that the market still sells off, but If you took puts on the rollover of the Bear Flag at 830 (on any stocks or the ETF's), you would think about locking some of the profit right here. If the SPX can sell off through 812 then you would target the 805 - 810 zone to take some more profits on your puts and only keep a smaller portion of any position overnight. We shall see what happens next.....

1:50 pm MT: Intra-day Update: The slowing momentum I warned of was correct, the SPX Double-Bottomed on the 30m charts right off 817. If you had puts, you're probably glad you locked when I warned of the potential momentum change over an hour ago. Now we wait to see what tomorrow brings.....