“As January Goes…”

The January Barometer phenomenon was first discussed in 1972 by Yale Hirsch, founder of the Stock Trader’s Almanac. It simply states “that as the S&P 500 goes in January, so goes the year.” 

For the S&P 500 Index the first five trading days of January 2014 were down -0.59% and the entire month was down -3.56%.  Does this mean that the S&P 500 will be down for the year?

Well let’s start by looking at what happened historically.  Below is a chart that shows 64 years of market history.

The 12 months following a January with a positive return have a very high (90%) chance of also being up. When January is down, there is a 54.2% chance that the following 12-month period will also be down, which is only a slightly better than an even chance or flipping a coin.

There is also a lot of debate surrounding the accuracy of this indicator.

For example, the January Barometer was wrong as recently as the years of 2009 and 2010.  In both years, the S&P 500 index finished lower for the month of January but higher for the overall year. 

And over the last quarter century (1988 – 2013) the average total return for the market in years where the January Barometer effect was wrong the S&P 500 was 16.5%.

Of course, there are many considerations to make regarding investment decisions. 

That’s why WESPAC Advisors uses proven technical indicators and active asset management as the cornerstone of our investment decisions.  Will the January Barometer hold true for 2014?  We don’t know (and neither does anyone else by the way). 

What we do know is that our Bullish Percent indicators turned negative in January and we took defensive actions to protect our clients’ capital, which we reported in our Market Advisory that we emailed to our clients on Monday, February 2nd.  We will stay on defense until our indicators tell us to do otherwise.