Why You Should Be Rooting for a Bullish January

  • SumoMe

Does it really matter if stock market performance is bullish during the month of January?  You bet! In fact, the more “persistently” bullish it is the better.  Let’s let the numbers tell the tale.

(See also Out With the Old, In With the, Uh-Oh)

The January Barometer and More

The January Barometer was devised by Yale Hirsch of The Stock Trader’s Almanac in the early 1970’s and is still tracked today at STA by his son Jeffrey Hirsch.  The simple theory is that “as January goes, so goes the rest of the year”, if January shows a gain then the 11 months from end of January through the end of December should also show a gain.

Using the Dow Jones Industrials Average, Figure 1 displays the growth of $1,000 invested in the Dow from the end of January through the end of December only during those years when the Dow Industrials showed a gain during the month of January.1Figure 1 – Growth of $1,000 invested in Dow Industrials from end of January to end of December if January shows a gain

For the record:

*# times up = 40 (85% of the time)

*#times down = 7 (15% of the time)

*Average Gain = +13.2%

*Average Loss = (-8.4%)

This seems like a good time to invoke:

Jay’s Trading Maxim #52: In the financial markets, anything that is 85% accurate is at least worth knowing about

But there is more.  In my (WARNING: Shameless, Self-Serving Plug to follow) book “Seasonal Stock Market Trends” I wrote about something I called The JayNewary Barometer (OK, it seemed like a good idea at the time). It is a simple model that goes like this:

*If the 1st 5 trading days of January show a gain add +1 point

*If the last 5 trading days of January show a gain add +1 point

*If the month of January as a whole shows a gain add +1 point

So at any point in time the JayNewary Barometer model can read 0, +1, +2, or +3.  Using the Dow Jones Industrials Average, Figure 2 displays the growth of $1,000 invested in the Dow from the end of January through the end of December only during those years when the JayNewary Barometer registered a reading of +3 (i.e., the Dow showed again during all 3 time periods listed above).2Figure 2 – $1,000 invested in Dow Industrials from end of January to  end of December if 1st 5 days of January and last 5 days of January and the month of January as a whole all register gains

For the record:

*# times up = 22 (92% of the time)

*#times down = 2 (8% of the time)

*Average Gain = +15.7%

*Average Loss = (-6.9%)

92% accurate is  pretty good.   But nothing is infallible.  A buy signal occurred on January 31st, 1987.  Which was fine.  For a while. Just ask anyone who was in the stock market  on October 19, 1987 (“Hi, my name is Jay”) when Dow lost 22% in a day.

So just remember that bad things can happen to good models.

Summary

Barring a decline of over 200 Dow points on 1/9/17, the 1st five trading days of January will register a gain.  Will the last 5 days and the month of January as a whole also register a gain?  It beats me.  But I know what I am rooting for.

To paraphrase P.D. Eastman, “Go Dow Go”.

Jay Kaeppel

6 thoughts on “Why You Should Be Rooting for a Bullish January

  1. Jay: Am I missing something ? Figure 1 goes to 70000 and figure goes to 20000, yet the average gain is higher for fig 2., the length of the time is the same. Thanks for great site. Satish

  2. Are you familiar w a study giving the Feb thru Dec returns when Santa Rally Period is pos, the 1st 5 trading days of Jan are positive and the month of January is positive. The results were ‘not bad’.
    Thanks
    amcohen1@gmail.com

    1. Alan, Stock Traders Almanac wrote about this. Don’t have the numbers in front of me but “Yes”, the results are very good going forward during years when this happens. Jay

  3. So if I understand this correctly since 1943 there has only been 24 times where there was a plus 3? So, in the real world, if you saw a plus 3 would you just buy the DIA and walk away for a year?

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