Replies to post #10086 on Sector Investing

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Amateur Investors Weekend Stock Market Analysis (2/9/13)

http://www.amateur-investor.net/Weekend_Market_Analysis_Feb_9_2013.htm

As you know January had it's best performance since 1997 as it finished up 5% for the month. Historically there have only been 21 occurrences since 1871 in which the S&P has had a January Return of 5% or more. Meanwhile there are bold predictions from analysts that within 3 to 5 years the Dow will reach 20,000 and the S&P 500 well over 2,000. The reason for these bold predictions is that since 1950 when the S&P has finished with a gain of 5% or more in January the average return for the year has been 24% while the average 5 year return has been around 60%. Notice since 1950 there has never been a negative return on a yearly or 5 year basis when January has risen 5% or more so this is why there are numerous bold predictions that the next great Secular Bull Market has arrived.

However before 1950 there were several years in which the S&P returned 5% or more in January but ended up with a negative yearly return or even a negative 5 year return. This is why the bullish analysts never talk about anything before 1950 since things didn't always work out as well. Thus you can clearly see the market has enjoyed the good life since 1950.

 
 After 1950 	January 	Yearly 	5 Year 	% from 	Shiller 
 Year 	Performance 	Performance 	Return 	4 Year Low 	PE Ratio 
 1/31/2013 	5.0 	? 	? 	127 	22.7 
 1/31/1997 	6.1 	31.0 	46.0 	86 	28.3 
 1/31/1989 	7.1 	27.3 	56.8 	82 	15.1 
 1/30/1987 	13.2 	2.0 	52.2 	102 	14.9 
 1/31/1985 	7.4 	26.3 	96.7 	76 	10.0 
 1/31/1980 	5.8 	25.8 	46.5 	35 	8.9 
 1/30/1976 	11.8 	19.1 	34.6 	67 	11.2 
 1/31/1975 	12.3 	31.5 	40.2 	29 	8.9 
 1/31/1967 	7.8 	20.1 	17.8 	41 	20.4 
 1/31/1961 	6.3 	23.1 	49.6 	54 	18.5 
 1/29/1954 	5.1 	45.0 	111.6 	57 	12.0 
 1/31/1951 	6.1 	16.5 	110.0 	60 	11.9 
 		Avg: 24% 	Avg: 60% 		 
 Before 1950 					 
 1/31/1946 	7.0 	-11.9 	9.9 	152 	15.6 
 1/29/1943 	7.2 	19.4 	46.1 	18 	10.2 
 1/31/1936 	6.6 	27.9 	-26.1 	236 	17.1 
 1/31/1934 	10.6 	-5.9 	18.3 	168 	13.9 
 1/31/1930 	6.2 	-28.5 	-58.3 	87 	22.3 
 1/31/1929 	5.7 	-11.9 	-61.0 	142 	27.1 
 1/30/1914 	5.3 	-11.5 	-3.0 	62 	11.6 
 1899-01-31 	8.0 	5.5 	6.3 	11 	22.9 
 1894-01-31 	5.8 	-0.5 	41.0 	20 	15.7 
 		Avg: -2% 	Avg: -3% 

Meanwhile if we look at those events when the S&P was up at least 5% in January, 100% or more above its 4 year low and had a Shiller PE of 17 or above there have only been three occurrences since 1871. The last event occurred this January while the others were in January of 1936 and January of 1929. Notice the 5 year return in these two previous events were -26% and -61% respectively.

 
 After 1950 	January 	Yearly 	5 Year 	% from 	Shiller 
 Year 	Performance 	Performance 	Return 	4 Year Low 	PE Ratio 
 1/31/2013 	5.0 	? 	? 	127 	22.7 
 1/31/1997 	6.1 	31.0 	46.0 	86 	28.3 
 1/31/1989 	7.1 	27.3 	56.8 	82 	15.1 
 1/30/1987 	13.2 	2.0 	52.2 	102 	14.9 
 1/31/1985 	7.4 	26.3 	96.7 	76 	10.0 
 1/31/1980 	5.8 	25.8 	46.5 	35 	8.9 
 1/30/1976 	11.8 	19.1 	34.6 	67 	11.2 
 1/31/1975 	12.3 	31.5 	40.2 	29 	8.9 
 1/31/1967 	7.8 	20.1 	17.8 	41 	20.4 
 1/31/1961 	6.3 	23.1 	49.6 	54 	18.5 
 1/29/1954 	5.1 	45.0 	111.6 	57 	12.0 
 1/31/1951 	6.1 	16.5 	110.0 	60 	11.9 
 		Avg: 24% 	Avg: 60% 		 
 Before 1950 					 
 1/31/1946 	7.0 	-11.9 	9.9 	152 	15.6 
 1/29/1943 	7.2 	19.4 	46.1 	18 	10.2 
 1/31/1936 	6.6 	27.9 	-26.1 	236 	17.1 
 1/31/1934 	10.6 	-5.9 	18.3 	168 	13.9 
 1/31/1930 	6.2 	-28.5 	-58.3 	87 	22.3 
 1/31/1929 	5.7 	-11.9 	-61.0 	142 	27.1 
 1/30/1914 	5.3 	-11.5 	-3.0 	62 	11.6 
 1899-01-31 	8.0 	5.5 	6.3 	11 	22.9 
 1894-01-31 	5.8 	-0.5 	41.0 	20 	15.7 
 		Avg: -2% 	Avg: -3% 

Finally we do need to be aware of the potential large Broadening Top pattern developing in the S&P. Remember the S&P developed a similar pattern from the mid 1960's through the early 1970's which was then followed by a 48% sell off. If the S&P does eventually make a new all time high this year above the 1576 level that sets up a rather large Broadening Top pattern once again.