Facts are stubborn things... and other keys some traders are missing in January

(I have to admit I was skeptical on the first day…) [image] At the beginning of every month, I project a path of broad market direction based on ATR (average true range), seasonality, cycles, and current market conditions. The idea is not to be spot on accurate. The idea is to have a plan to make money — regardless of noise, nay-sayers, and what sometimes seems like nonsensical national near-sightedness (even if it isn’t). Hindsight Is Always 20/20, But …. December perfectly followed its seasonal tendency of moving in a down trend the first half of the month (month open to CPI News). What it didn’t do is follow its seasonal tendency to float up the second half of the month (dotted arrow). Instead, it continued the path down, crushing the “bulls' hope for a rally.” Then again, let’s take a deeper look — What you decipher might help you with your future trading. [image] The Market Isn’t Just What It Seems In reviewing the chart above, the swing high accomplished off the hot CPI news reached a weekly ATR and month goal with practically no effort. Obviously it didn’t hold, and the market fell off the tracks that one historic day before another historic day, the December 14th FOMC announcement. But still price went where price went — And all I’m saying is that I take note of ATRs. With volatility in high gear, the market accomplished several other feats worth noting. For one, December 1st marked the top of an approximate six to eight week run evidenced in the chart above. That was a really nice swing trade rally. (Yeah, yeah, I know — a “bull trap” the headlines stated confidently as I took money to the bank.) From a mere price action standpoint, however, that was a very difficult “top” to “top” in a bear market. To add to the tough conditions, it came at the month open — a very key time and a very key number. It’s like the market ran a marathon for 6-8 weeks, crossed the finish line with grand applause, and then was told to start running the next marathon. What might be helpful to understand is that institutional accumulation was practically all-in as far back as September when certain strong stocks started their marathon run. One simple example is EMR (Emerson). It’s taking a rest after the strong run. Where will it go next? [image] Facts Are Stubborn Things It’s just a fact that the broad S&P market managed to squeak out a slight Santa Rally in December despite Grinch, and it held its lows which were higher than November’s lows. You can see this in the chart below (December 23rd – January 4th). Looking at the same chart, it’s also worth noting that the First Five Trading Days just closed positive. I have to admit I was skeptical on the first day of the trading year about its ability to achieve another rally when the market gaped up strongly. I said to myself on that Sunday night when the futures surged, “I don’t know how this bear market could possibly move higher under this condition. But anything is possible, and it will tell me – I just have to be patient.” The condition I’m referring to is not the 2022 bear market. It’s the difficulty of both getting back to the opening price and getting above it based on recent trading. It's similar to the overbought type of condition on December 1st but in a smaller time frame. It took some serious work to accomplish this the first five days. Again, it’s price. I’m just saying I took note. [image] Where Do We Go From Here? Simply based on the two trends shown in the chart above, the probability of January ending higher is strong based on historical evidence. That doesn’t mean that it will, it is just an argument for a higher close. That’s January, not February, not March — one month at a time. What’s important is having a plan to make money and protect capital. Which brings us to January… What will happen next? One of my favorite cycles is the Presidential Cycle. I know how to use it to give me an edge. That’s the key, and it’s what many miss. Here it is straight out of the Stock Trader’s Almanac. [image] Is it possible? What will push us there? What sectors will outperform if the broad trend is up? If it’s possible, how will it get there? Answer: Not in a straight line. Here’s how I’m looking at January (my hard-right-edge rectangle shown below). Among other things, I’ll be watching for breaks in support and evidence in price as a contradiction to projection particularly if it approaches November and October lows. [image] My number one goal is to take green to the bank. How will I get there? Answer: Not in a straight line. It will be recorded, reviewed and then used to rationalize February. I hope this helps your January focus. The market is full of curves. Face them straight on and trade to trade well. Think and win, Celeste Lindman Ask The Pros P.S. For more trading talk and actionable insights on my FREE Telegram channel, [click here to join me.](=) RISK DISCLAIMER There is a very high degree of risk involved in trading. Ask The Pros and all individuals affiliated with this site assume no responsibility for your trading results. The indicators, strategies, columns, and all other features are for educational purposes only and should not be construed as advice. Information for futures trading observations are obtained from sources believed to be reliable, but we do not warrant its completeness or accuracy, or warrant any results from the use of the information. Your use of the trading observations is entirely at your own risk and it is your sole responsibility to evaluate the accuracy, completeness and usefulness of the information. You must assess the risk of any trade with your broker and make your own independent decisions regarding any securities mentioned herein. 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