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January Declines Over the Past Decade 2000 Through 2010

The schedule below shows an incredible history of repeated stock market behavior over the past eleven years, where the Dow Industrials topped and declined anywhere from 4.43 percent to as much as 29.81 percent at the beginning of every single year for eleven years in a row!

 

Seven of the tops occurred during the month of January, with most of those occurring during the first half of January. Two saw tops in the month immediately preceding January, and continued their declines throughout the beginning of the year 2005 and 2008). Seven of the declines lasted almost the entire first quarter of the year.

 

This is amazing because once again, we have technical analysis evidence suggesting another beginning of the year top is possible in 2011.

 

Why does this happen? I have no idea. Technical analysis focuses on explaining market moves based upon mass psychology of market participants. Clearly, for some reason, the start of New Years comes with a collective psychological negative bias toward prospects for the economy and markets in the New Year.

 

 

Take a good look at the following Monthly chart for the Dow Industrials. In particular, the Full Stochastics. Each time the Monthly Full Stochastics rose to the blue horizontal line, an overbought level, stocks put in a significant top. There were a few relatively minor tops which still resulted in declines greater than 10 percent such as in 2004, and pre-warning tops in 1999, 2007, and April 2010. However, this condition in the Monthly Full Stochastics led to two major tops in the first decade of the new millennium, January 2000 and October 2007, both of which led to extended massive declines.

 

Once again, here at the start of 2011 we see the Monthly Full Stochastics overbought, warning that a major top is near. The previous two major tops in 2000 and 2007 saw a pre-warning top a few months before the big one, and early overbought levels in the Monthly FS. Here in 2010, we got one such early warning top in April 2010. Now the Monthly FS is marching toward its defining top which could be followed be an extended plunge, the third great top of the past decade.

 

It is also fascinating that stocks are topping here in early 2011 at approximately the same price level as January 2000, those peaks being the left and right shoulders of a massive Head & Shoulders top pattern, the Head occurring at the all-time nominal high in October 2007.