9:00am (EST)

The Dow fell 166 points on Friday, or 1.4%, and closed at 11,823.  Although the index reached our near-term target of 12,000 last week, we had trouble closing above this level.  We also listed key support levels to watch for on a pullback on Thursday and again on Friday.  For the Dow it was 11,800-11,750.  The index traded to a low of 11,803.  The blue-chips could test 11,550-11,500 and then it gets interesting but we don’t feel the Dow is done flirting with 12,000. 

The S&P 500 dropped 23 points, or 1.8%, to end the week at 1,276.  The index also managed to take out our target of 1,300 on Thursday and Friday but couldn’t close above it, either.  We said to watch for the 1,275-1,270 level to hold and the index traded to a low of 1,275.  There is additional support at 1,260-1,250 and a break below 1,250 could get scary but we still expect a battle at 1,300 again. 

The Nasdaq got hammered for 68 points, or 2.5%, and settled at 2,686 but ended the week down only 3 points.  On Friday, we were looking for 2,650-2,700 to hold in our 1pm update and it did.  There is further risk down to 2,550-2,500 but we are still looking for a run up to 2,850-3,000.

Today is the last day of January so here is what we are looking at.

From our 12/26/10 Weekly Wrap:

“January is also a pivotal month as far as determining market direction for 2011 according to the January Barometer (JB).  This “theory” states that however the S&P 500 trades for the month, so goes the rest of the year.  The JB was created in 1972 and carries a .783 win rate, on average, and has registered only 6 “errors” since 1950 for a 90% win rate.

This year, at the end of January 2010, the S&P ended at 1,073 after starting the year at 1,115, for a loss of 3.7%.  So, unless the market crumbles, the JB was not a good indicator this year.  History can and does repeat itself in some situations concerning the market and stocks but what we found interesting was this was the first time that the JB could be wrong for two straight years.  In 2009, the S&P 500 dropped 8.6% in January (from 903 to 825) but ended the year higher by 23.5%.

Is it possible the JB could be wrong for the third straight time this January?  It would be hard to believe but something that bears watching.” (END)

From our 1/2/2011 Weekly Wrap:

“Last week we mentioned the January Barometer so this week we thought we would throw some more factoids at you. 

Although the jury is still out on President Obama, the third year of a new President has historically been bullish.  The bulls were already on a run before the November midterm elections, but here is the best part about this data.  Since 1948, there have been 15 full presidential cycles, and all of them showed strong stock market gains in the third year.  The average pop has been nearly 18%.

Here is another thing to watch for this week.  The “first 5 days of January” are usually a early warning “system” that Wall Street likes to use to see where the market may end for the year.  If we go back 60 years, the last 37 UP “first 5 days of January” have been followed by full-year gains 32 times.  The 23 DOWN “first 5 days of January” have been followed by 12 up years and 11 down.

These tidbits are nice but the market will get a fresh look at 4Q and yearend results, which will be the real catalyst going forward, starting in 2 weeks.” (END)

The S&P 500 started 2011 off at 1,257 and closed at 1,271 for the first five days of January.  Check one.  If the bulls can hold 1,257 today then the January Barometer will give us check two.  Another factoid about the January Barometer is that when the month is positive, February averages gains of 0.5%.  If negative, then the average loss for February is nearly 1%.  Yikes!

As you can see, the January Barometer has been a good indicator in the past, and today will be an important day (in theory) for Wall Street.  The S&P is up 2% so far this year, with one more trading day to go.  

As we head to press, Dow futures are up 42 points to 11,817 while the S&P futures are higher by 6 points to 1,277.  The Nasdaq 100 futures are showing a 7 point pop to 2,275.