MDA - Market Direction Analysis

[gfs_1999]

THE JANUARY BAROMETER
Over the last two weeks we discussed three specific market barometers on our
subscriber hotline which always come up during this time of the year. On January 2, 2003
we stated the following: "We have heard much talk in the press about the failure of the so
called 'Santa Claus rally' in this time frame. In fact, the rules for the Santa Claus rally,
according to one of the astute market analysts we have ever known, Mr. Yale Hirsch
(www.stocktradersalmanac.com), are as follows: "Santa Claus used to come to Wall
Street nearly every year, bringing a short, sweet, respectable rally within the last five
trading days of the year, and the first two in January." (So we are still within the time
limits for the Santa Claus rally.) The other Santa Claus rule is as follows: "If Santa Claus
should fail to call, the Bears may come to Broad and Wall."
Another rule of importance in this time frame is the January early warning system. If
the Dow and the S&P 500 close up in the first five days of January a bullish signal be
will be given. If we close down in the first five days of January, a bearish signal for the
year will be given by this system."
Perhaps the most widely followed of these types of indicators is the January
Barometer. According to Mr. Hirsch: "Since 1950, January has predicted the annual
course of the stock market with amazing precision, registering only four major errors for
a 92.3% accuracy ratio." The January Barometer, devised by Yale Hirsch in 1972, is
based on whether the S&P 500 is up or down in January. Most years, stocks continue the
course set in January. Mr. Hirsch states: "Of the four major errors, two (1966 and 1968)
were affected by Vietnam, one (1982) by the start of the powerful bull market that began
in August 1982, and in 2001 the Fed's two January rate cuts unnaturally buoyed the
market higher. The 9/11 attacks, despite the subsequent rally, still likely held the market
down in 2001. However, there was only one error in odd years (2001) when a new
congress convened."
Mr. Hirsch goes on to state: "Every down January since 1950, without exception,
preceded a new or extended bear market, or a flat market."
If the S&P 500 closes above 879.82 on January 31, the January Barometer will give
a bullish signal for the year 2003. If the S&P 500 closes below 879.82 on January 31, a
bearish signal will be given.

source: Jerry 's January Newsletter