Stocks see best January since '97

The Dow and S&P 500 are enjoying their strongest starts in 16 years. And they're showing signs of being overbought. So are some key technical indicators. A sell-off may be coming.

By Charley Blaine Jan 23, 2013 2:41PM
 © Adam Gault, OJO Images, Getty ImagesQuietly, the stock market has been having a very nice January. But at least a small pullback is due, and it may show up fairly soon.

The Dow Jones industrials ($INDU) are up about 5%, potentially their best January performance since 1997. Ditto for the Standard & Poor's 500 Index ($INX), up 4.6%.

The Nasdaq Composite Index ($COMPX) is up 4.4%, its best January since, well, January 2012.

The Nasdaq isn't performing as well as it did a year ago. The index jumped 8% in January 2012, thanks in part to a 12.7% gain for Apple (AAPL), a 12.3% gain for Amazon (AMZN) and a 16.7% gain for Broadcom (BRCM).

Still, the stock market is doing well, in spite of worries about the debt ceiling, the fiscal cliff, high unemployment, a weak holiday selling season and assorted other issues.

In fact, just three Dow stocks are lower in January: Verizon Communications (VZ), Boeing (BA) and Bank of America (BAC), down about 1.6%, 1.8% and 2.3%, respectively. The Dow leaders are Hewlett-Packard (HPQ) and Traveler's Companies (TRV).
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Only 47 S&P 500 stocks are lower; the laggard is Monster Beverage (MNST), down about 9.2%. The leaders are Best Buy (BBY) and Dell (DELL), thanks to buyout speculation.

And just 10 stocks in the Nasdaq-100 Index ($NDX) are lower. Monster is the laggard. Dell is the leader.

So why is a selloff near?

One reason is the relationship between stocks and presidential inaugurations, says Tom McClellan of the McClellan Market Report.

"When the stock market rallies into a presidential inauguration, that’s not necessarily a good thing for the rest of the year," he wrote on Wednesday. "The basic idea is that investors are not very good at figuring out what’s good for them, and so when they think something is good, they often find out later that they were wrong."

In addition, there's too much complacency. You can see it in two measures of volatility: the CBOE Volatility Index ($VIX) and the CBOE Nasdaq Volatility Index ($VXN), both trading near all-time lows. The VIX, as it is often called, measures the ratio of sales of put options, which are options to sell stocks, to call options (options to buy) in the S&P 500. The VNX looks at volatility in the Nasdaq.

Low levels for the VIX or VXN are signals of big optimism, which often precedes a pullback.

The other measure I watch is relative strength indexes, which measures momentum. An RSI above 70 signals something is overbought. As of Wednesday, the Dow's RSI is 77. The S&P 500's RSI is 76. Both were above 80 as last as Tuesday.

You can see the Dow's RSI here.

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8Comments
Jan 23, 2013 3:06PM
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Why no taking into account that the last quarter and arguably the 2nd half of 2012 were deflated over the election and then the concerns over fiscal cliff.  Now that the tax issue is solved and debt ceiling raised (short term) and GOP starting to understand you cant hold the US economy and people hostage is giving business a better feel.
Jan 23, 2013 3:40PM
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Looks like another Winter Pump-Summer Dump year, three in a row, interesting trend.
Jan 23, 2013 3:44PM
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I wonder how long they can print money to prop this market up.   The need and greed for more and more will  destroy this country.
Jan 23, 2013 7:19PM
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Elect a Democrat to a second term = high stock prices.  That said, it doesn't mean that workers benefit one damn bit - just the wealthy who own stocks.
Jan 23, 2013 5:25PM
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Don`t the bears just hate hearing good news?Their response is "the markets` fixed

and it`s going down".They`ve missed the 86% upswing in 4 years.They might as well

miss the next 86% rise.

Jan 23, 2013 11:17PM
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It ain't over until the fat lady explodes....
Jan 23, 2013 4:22PM
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It is all BS....have fun!  Listening to Clinton, now.  If you can possibly think that something is not going on then you are nuts, period.  She is as disgraceful as this idiot in office.  It will not change.  Let's have some more shootings....guns in the hands of two lost generations..this will continuel  Go ahead and print some more money.  You asked for this guy in office and you are going to have to bend over as it is going to get worse...."bank" that.....Adios.
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