January Volatile For Stocks, But Bull Market Not Over Yet [SPDR S&P 500 ETF Trust, iShares Russell 2000 Index (ETF)]

wall-street-etfGeorge Leong: Many of you are probably happy to bid farewell to January. Not only was the weather nasty, but the stock market also traded in a volatile manner, with the bias to the downside.

The month ended in the red, with the major stock market indices trading below their respective 50-day moving averages and looking lower. The S&P 500 is below 2,000 once again and has been unable to get its footing above with any sustained momentum (as you can see in the chart below).

For traders who follow the historical cycles of the stock market, we know that the negative month suggests the stock market is in for some difficult times this year. But I’m not convinced the bull market is over quite yet.

Large Cap Chart

Chart courtesy of www.StockCharts.com

When the markets start January down, the tendency is for a down year for the stock market about 80% of the time, but that is not always the case. As we saw in 2014, January also produced a down month but recovered with an up year. That month, the decline in the Dow and S&P 500 was greater than this January’s, but the S&P 500 subsequently closed higher in eight of the next 11 months.

S&P 500 Large Cap Chart

Chart courtesy of www.StockCharts.com

Now, I’m not suggesting the same will materialize this year for the stock market, but it’s something to keep in mind as we move into February, which saw the markets bounce back in 2014.

The key for the main stock indices will be the 200-day moving average (MA), which is just below where the indices are sitting at now, with the exception of the NASDAQ. But even a break at the 200-day MA would not be a big deal unless the 50-day MA was to break below the 200-day MA.

Bull Market to Continue This Year?

It’s clear the stock market is hesitant, but I’m not ready to pronounce an end to the six-year bull market. I feel the rest of the year will be much like 2014, when trading was cautious.

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