January is a solid month for market performance as an influx of cash from yearend bonuses and annual allocations propels stocks higher. Since 1950, January ranks #1 for NASDAQ, but third on the S&P and fourth on the Dow. It is the end of the best three-month span and possesses a full docket of indicators and seasonalities.
The first indicator to register a reading is the Santa Claus Rally. The seven-trading period ends on January 3. Normally, the S&P 500 posts an average gain of 1.6%. The failure of rally tends to precede bear markets or times stocks could purchased later in the year at lower prices.
On January 8 our First Five Days “Early Warning “ System will be in. This indicator has a much better record when its up and is 12 and 2 in Pre-Election Years. Only the two down years were wrong.
Then there is our flagship indicator, the January Barometer. Yale Hirsch created it in 1972. It states simply that as January goes so goes the year. It came into effect in 1939 after the Twentieth Amendment moved the date new Congresses convene to the first week of January along with Presidential inaugurations.
The long-term record has been stupendous, especially in odd-number years like 2007 when new Congresses convene. Errors in 2001 and 2003 and a flat 2005 have not rattled this indicator. The markets position on January 31 will give us a good read on the year to come. When all three of these indicators are in agreement it has been prudent to heed their call.
