Stock Market Closes Strong January

Major U.S. stock indexes and ETFs close January with a down day

red arrow, index ETFs, ETFs, spy, dia, qqq, iwmfiscal cliff, initial unemployment claimsU.S. stocks and ETFs posted a big January with the Dow Jones Industrial Average (NYSEARCA:DIA) gaining 5.8% for the month, along with the S&P 500 (NYSEARCA:SPY) notching a 5% monthly gain.  Both the Dow Jones Industrial Average (NYSEARCA:DIA) and the S&P 500 (NYSEARCA:SPY) remain at overbought levels and need to move sideways to unwind overbought conditions.

The S&P 500 (NYSEARCA:SPY) closed just below the psychologically and technically important 1500 level, U.S. stocks declined Thursday after a report showed jobless claims rose, but benchmark indexes still produced one of Wall Street’s strongest starting months in years.

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The gains in January bode well for the rest of the year as all of Stock Traders Almanac’s January Indicators, the Santa Rally, the first five days and the January barometer, all came in positive.  This has happened 27 times since since 1950 and was followed by yearly gains 25 times.

For the last day of month, the Dow Jones Industrial Average (NYSEARCA:DIA) fell 0.33%, the S&P 500 (NYSEARCA:SPY) slipped 0.25%, the Nasdaq 100 (NYSEARCA:QQQ) dropped 0.26% and the Russell 2000 (NYSEARCA:IWM) bucked the trend with a gain of 0.58%…

In other major markets, oil (NYSEARCA:USO) lost 0.48% to close at $97.49/bbl and gold (NYSEARCA:GLD) fell 0.86% to close at $1662/oz.

In economic reports, initial unemployment claims climbed to 368,000 and January Chicago PMI came in at a better than expected 55.6, putting the index back into expansionary territory.  Tomorrow comes the closely watched monthly Non Farm Payrolls and Unemployment report, along with Markit PMI and University of Michigan consumer sentiment.

The Senate voted to extend the debt ceiling debate into mid-May, matching the House’s action, and the President is expected to sign it.  Now the stage is set for a two part debate, the “Fiscal Cliff Part 2″ sequestration debate due to come to a head on March 1st and the debt ceiling standoff now postponed until May.

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Bottom line: Stock indexes and ETFs close out a strong month and consolidate below significant resistance levels.  At overbought levels, more sideways action or further declines could be expected to unwind some of the frothiness of the recent rally.  Strong support rests at the 1470 level on the S&P 500 (NYSEARCA:SPY) roughly 2% below today’s closing levels.

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John Nyaradi is the author of The ETF Investing Premium Newsletter.