Are Stocks Poised for Another January Swoon? Remember 2010

Bullishness on stocks sure paid off in 2010 as the market put up strong double-digit returns, but investors would be wise to recall that equities didn't turn positive for the year until its last few months. If 2011 really is shaping up to be a reprise of 2010, the market is poised for a fall.

Remember that after topping out in late April, stocks went into a swoon that didn't bottom out until July, slicing 17% off the S&P 500 ($INX) along the way. Jeffrey Saut, chief investment strategist at Raymond James, has been timing the market as well as anyone over the last couple of years, so when this bull turns cautious, we'd best heed his warnings. And right now Saut sees things lining up in a way that's spookily similar to 2010's trend.

"I am worried that last January's stock market pattern may be repeated this year," Saut told clients in his inaugural report of the new year. "While markets can certainly do anything (read: can continue to travel higher), the odds are not tipped in investors' favor in the short-term and I am cautious."

Take a look at this chart of the Dow Jones Industrial Average ($INDU) and S&P 500 from January 2010. Both averages got off to good starts, tacking on a decent 1.5% or so through the first three weeks of the month. Then they tanked. By January's end the Dow was off nearly 5%, and the broader S&P 500 was down more than 5%.



Never mind the macroeconomic and geopolitical risks that could derail the rally. Even if you're bullish on stocks for the year as a whole, too many technical indicators are lining up that suggest a pullback or correction is due, Saut writes.

For one thing, investors are way too complacent. The CBOE Volatility Index ($VIX), also known as the "investor fear gauge," is down to levels last seen in April 2010 -- right before the market went into that 17% correction that lasted until July, Saut notes. When investors get too comfortable (believing that the market can only go up), well, that's when bad things can happen.

The same goes for sentiment, which is also a contrary indicator. When investors reach levels of extreme pessimism, all the sellers have already sold, meaning stocks are poised to rise again (the thinking goes). The converse is also true: When everyone is wildly bullish, all the buyers have already bought.

So consider this: Investors Intelligence data indicate advisers are approaching the bullish extremes of October 2007, Saut writes. That's when the Dow peaked at its all-time high above 14,000.

Plenty of other technicals are flashing yellow, too, the strategist says. "Stock market leadership is narrowing, internal momentum is waning and every macro sector except utilities is overbought," Saut writes. "All of this suggests more caution is warranted as we enter the new year."

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wla2000

...and exactly how many of you listen to Raymond James?

January 05 2011 at 11:07 PM Report abuse rate up rate down Reply
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January 05 2011 at 8:21 PM Report abuse rate up rate down Reply
bansijeff

This article is ridiculous - if you look at a chart of the market's performance in 2010, the end of January 2010 was a great time to BUY. Doesn't anyone actually look at the facts anymore?

January 05 2011 at 5:19 PM Report abuse rate up rate down Reply
B INSANE OBOZO

you should heed his advice.

January 05 2011 at 3:09 PM Report abuse rate up rate down Reply
easymoney235

Presidernt Obama and his administration continue to do superb work, despite adverse activities that continue to attempt to disrupt that progress.

January 05 2011 at 3:06 PM Report abuse -4 rate up rate down Reply
1 reply to easymoney235's comment
B INSANE OBOZO

if you are severly challenged, you could buy gm, put stimulus money, one after the other with no economic improvement, and i think the definition of insanity is exactly what this administration has done.

January 05 2011 at 3:11 PM Report abuse +1 rate up rate down Reply
bankerbl

Who is Jeffery Staut and why are his self serving bearish comments on the stock market for 2011 even printed?It is pure negative opinion that can only benefit him.

January 05 2011 at 2:03 PM Report abuse rate up rate down Reply
CnOWrms1

I am opposed to investing at this time. We need more insight and speculation views from DC because, as we know, we didn't send republicans to DC to appease the pres's agenda. There could be another % correction mid year that could last for months, in the other direction.

January 05 2011 at 1:02 PM Report abuse +1 rate up rate down Reply
1 reply to CnOWrms1's comment
savemycountry911

Dems still don't get it. They want spending as usual. H E L L O, we can't afford you anymore.

January 05 2011 at 1:55 PM Report abuse +1 rate up rate down Reply
gardeningatnite

Do not invest in the stock market. If you have any extra cash, put it away in a savings account or, if you can, pay down on your mortgage so you can own your home as soon as possible. You can also buy very safe government savings bonds or T-bills. Or just buy your mother some flowers.........

January 05 2011 at 12:54 PM Report abuse +1 rate up rate down Reply
1 reply to gardeningatnite's comment
savemycountry911

I guess I'll have to agree with that except that savings accounts don't pay any interest to speak of.

January 05 2011 at 1:56 PM Report abuse -1 rate up rate down Reply
hemipwr54

Flip a coin , heads it will rise , tails it will fall , just as good as anything else as a indicator .
Ever see a monkey scratch it's rear , it's because it's head itches , kind of like the Market .

January 05 2011 at 12:44 PM Report abuse +1 rate up rate down Reply
weissyoungstown

First of all most babyboomers are retiring and using up their stock investments to live on.That takes a lot of investment monies OUT of the market.Then there are the very wealthy who use their purchasing power to inflate prices of stock..and then unload them quickly for a profit..then there is the real economy that has been outsourced to foreign lands by our fine American corporations taking large blocks of formerly good paying jobs here and turning them into worthless jobs overseas.This causes loss of purchases..loss of tax base..loss of quality of life...not to mention loss of many entitlement programs..figure it out..not to mention the fact that there may be more thieves out there..is the stock market a good investment anymore????

January 05 2011 at 11:49 AM Report abuse +8 rate up rate down Reply