1) The first week of 2016 was the worst 5-day start in the history of the stock market. The non-stop selling caught many market participants by surprise. While most were expecting some form of a bounce during the second week of January, the selling continued. It was mostly fueled by: slowing fundamentals, poor technicals, lack of leadership, global economic slowdown and complacency based on many sentiment measures.

2) Finally, on January 20th, some signs of capitulation showed up in the market (I discussed them that night in this video). Spikes in fear is important to pay attention to, as the market tends to fool the majority of people.

3) The market stabilized during the last week of January and we finally saw some institutional buying on 1/26, 1/28 and 1/29. The buying was sparked by strong earnings reports, the Bank of Japan’s Negative Interest Rate Policy announcement Thursday night, and a Fund Futures Market which started to show no further rate hikes this year.

The most impressive part of the month came on the last trading day. Why? Because we need to see the big institutions participate in order to start a new uptrend, and we finally saw strong volume signs of it on Friday 1/29. Of course we are not out of the woods yet and I continue to expect volatility in the market. Thankfully, I had a large cash position for my clients during the decline this month and I began to add more positions this week in strong stocks that have held up well. Examples include MO, AWK, DPS and MKTX. My reasoning is that if these fundamentally strong stocks survived the decline, they should do well if market conditions continue to improve. Here’s to a better February! Good luck trading!

I can be reached at: jfahmy@zorcapital.com

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