Ready To Test The ‘January Effect’?

January 6, 2004
Chris Curran

The
March SP 500 futures opened the first “real” session
of the New Year with a 4-point gap to the upside, ready to test the so-called
“January effect” on the heels of fresh earnings news and broker upgrades,
and essentially ignoring a new leg of weakness in the U.S. dollar. Good broker
buying off the open undermined any attempt to fill the gap, with Merrill Lynch
alone a buyer of roughly 1,000 SPH contracts. The early TICK readings showed
the shorts pinned against the wall, as it made shallow pullbacks and higher
advances before finally relenting a bit. The contract spent the lunchtime hours
working off its excess before the 2:00 hour brought the buyers back up to the
plate.

The March SP 500 futures
closed Monday’s session with a gain of +11.00 points, and finished in the top
1/2 of its daily range. Volume in the ES was estimated at a heavy 609,000 contracts,
which was ahead of Friday’s pace and well above the daily average. Looking at
the daily chart, the contract closed above the March 2002 high crossing at 1,109
as overbought continues to just become more overbought, giving those who fancy
picking tops a nervous breakdown. So far, the music hasn’t stopped, but we’ll
want to be monitoring open interest in the days ahead to see if any skips in
the beat are forming in the advance. A close below the 10-day MA at 1,101 would
confirm any short-term top. On an intraday basis, the 60-min, 30-min, and 13-min
charts all broke cup and handle patterns with support now at the 1,118 breakout
area.

Tuesday morning will shed a bit more
light on business conditions with the December ISM Services report at 10:00
am ET. Estimates are for a slight increase from November to 60.8.

I hope everyone had a happy
and restful holiday season and has put 2003 to rest. Regardless of whether you
had your best year ever or your worst year ever, it’s history either way and
time to focus on the year ahead!