One thing is for sure: the S&P 500 ($SPX) finished 2010 on a bullish tear, remaining highly resilient to the end. However, given the January profile of the last three years, we could see a sizeable drop to begin 2011, as profit-taking hits its full stride. Here’s why..
Average of 6.1%
The last three years, the S&P 500 has lost an average of 6.1% in the month of January, losing 6.1% in 2008, 8.6% in 2009, and 3.7% in 2010. Could we see the same type of behavior in January 2011? My guess is yes.
The S&P 500 rallied solidly from the 1,050 level over the last four months, with only one decent retracement during this time (November). Furthermore, the market not only held highs in December, but it continued to reach new yearly highs throughout the month, despite weak volume. Seems to me that profit-taking could take over in January, which could lead to another first-of-the-month slide.
Target of 1,180?
If the market were to drop 6.1% to kick off 2011, we’re looking at a drop of about 76.73 points, which would put the index at around 1,181.15 sometime before February.
As you are probably familiar, the 1,180 level has been a major source of support in this index since November, so this ties in nicely with the technicals of the chart in the daily timeframe.
Buy the Dip Opportunity
Given the strength of the market since the bottom in 2009 and the lows of 2010, any dip to begin the year could be an excellent buying opportunity. As long as the S&P continues to hold above 1,170, we could see buyers enter the market in droves, which could yield new highs above 1,300 by April. Let’s see how this one plays out!
Here’s to a great year of trading in 2011!
Cheers!
Frank Ochoa
PivotBoss.com
Follow Frank on Twitter: http://twitter.com/PivotBoss
