Stock Market Review: Worst January Performance In Recent History

Debt and Equity markets turned in an ugly conclusion to the day, the week and the month, with the US 30-year Treasury Bond and the S&P 500 Index (^GSPC) closing down -8.22% and -8.57% respectively for the month. These losses amount to trillions of dollars.

At Friday’s close, the DJIA (^DJI) (-148.15 -1.82% to 8000.86), S&P 500 (-19.26 -2.28% to 825.88) and NASDAQ Composite (^IXIC) (-31.42 -2.08% to 1476.42) all closed sharply lower for the second consecutive day, turning what started out to be a terrific week for the bulls into a disaster for most accounts.

The Toronto Composite (-67.86 -0.77% to 8694.90) followed NY south, but the Venture Board (+2.09 +0.24% to 882.63) rallied again, which makes it six days of gains in a row among the index of high-risk stocks. In case traders are not watching, that’s a rise of +3.8%.

Earlier in the day, the European bourses also sold off. The French CAC dropped -1.19% to 2973.92; the German DAX -2.03%; and the UK FTSE 100 -0.97%, so as NY opened weak, then dropped, it was a case of Europe following along.

As reported yesterday morning, the Asia-Pacific equity markets were mixed: the most important, the Nikkei 225 plunged -3.12% to 7994.1 under the weight of soaring unemployment and spending that has hit the wall in Japan. But, for some reason, Australia was up +0.49% to 3478.1; Hong Kong gained +0.94% to 13278.2; and India’s Sensex BSE 30 rallied +2.04% to 9424.2.

There were no winning sectors or industries in NY. Healthcare (XLV -1.1%) was the best of the ten major sector ETF’s. Basic Materials (XLB -3.9%) was the biggest loser.

Among the industry groups, even as $GOLD was on its way to a $21.90/oz rally to $928.40, the Goldminer index ($XAU) was down -1.1%, as traders were conscious of the 930 resistance level.

As for the Cara 100, the winners were led by Amazon.com (AMZN +17.6% on +364% average daily volume) as traders were surprised by the corporate earnings report ($0.52 versus consensus $0.38 and $0.48 a year ago). CHA +5.5%, FSLR +4.3%, and BA +3.9% were also winners. The losers were led by Juniper (JNPR -16.6% on +383% average volume), a company that develops network infrastructure components, which reported Q4 2008 EPS of $0.32, exactly in-line with consensus estimates, and up from the $0.27 EPS a year earlier. But the company guided 1Q2009 EPS in the 15-17 cent range, versus the consensus of $0.27, which caused some ratings downgrades. TCK -10.3%, VCP -7.1%, JCP -6.5%, PG -6.4%, SNDK -6.2%, and CSCO -6.0% were the other big losers on the day.

US Treasury Bonds pulled back again - the 9th loss in the past ten sessions. The 30-year $USB dropped -0.34% to 126.70. The Dec 31, 2008 close was $141.42, so the loss in the long Treasury bonds this month has been -10.41%, which is worse than the equity market indexes.

$GOLD closed the month at $928.40, which is a gain of $58.40/oz from the Dec 31 close of 870. That’s a gain of +6.02%, so my Trade of the Generation pronouncement Nov 17 has been working out. In fact $GOLD closed Nov 18 at 742, so the gain in two and a half months is +11.64%. The other half of that TOG was to sell bonds, and the US long bond that day was 118.81, so there has been a loss of -6.64% on the bonds. In any case, I’m still ahead by a comfortable margin, and the S&P 500 has dropped -25 points or -2.94% over the same time frame. Nov 18 was the first day we started setting up accounts for the public, and I know that we have been a winning team ever since.

Yield on the 30-, 10- and 5-year Treasuries ended at 3.603%, 2.844%, and 1.873%, respectively, which represent big gains this week. The T-Bill yield remained unchanged Friday at 0.220%.

The $USD strengthened +0.64% to 85.89, and the Euro dropped -0.97% to 128.18.

Spot prices for gold, palladium, platinum and silver, at the close Friday, were: 926.80, 191, 984, and 12.62, respectively.

US Crude Oil (March) futures closed the month at 41.68.

The DJIA futures closed the month at 7955, amid all the doom and gloom.

I suppose it is only fitting that after posting one of the worst yearly declines in US stock market history, the ensuing year would start off with one of the worst January performances in recent history, with the S&P falling -2.28% Friday and -8.57% on the month.

Gold was the stand-out performer Friday with GLD up +1.96%, closing at 91.31 and nearing a near-term break-out level of 92. The gold mining stocks, however, did not fare nearly as well; many gapped up +2-3% on the opening, but quickly reversed lower, under moderate selling pressure all day long. Some of this was probably due to a weak equity market, general profit-taking at month-end, and a stronger dollar. There are no red flags as yet, but the situation needs to be monitored, especially if gold continues higher and these stocks are unable to push through resistance near 38.75 on the goldminer ETF (GDX -0.61% Friday, closing at 34.16).

$GOLD futures are up +5.0% for January. There is a lot of talk about gold and the miners should out-perform if the precious metal does break out convincingly. So, traders who seek some upside exposure may consider purchasing calls on favorite gold stocks, but only as they break through resistance. The implied volatilities on many of the three to six month out strikes, although slightly elevated by historical standards, are reasonably priced for traders expecting the underlying equity to rise by +50% over a relatively short period of time.

Some of us were a little surprised the broader market was unable to mount any sustainable rally the entire session given that financial stocks were relatively firm, and XOM and AMZN were higher for most of the day on upside earnings surprises.

Exxon (XOM) may face scrutiny from the Democrat-led Congress over “windfall profits”, even though the company paid 116 billion dollars in taxes last year. The stock has performed very well over the past few months; however, the current political headwinds and the current chart formation may argue for much lower stock prices regardless of the future price of crude oil. We may look to short XOM in the future and buy other oil stocks against it as a hedge. SLB, PBR, and RIG would be considered.

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