Feb

3

Editorial comments: I wonder how many up Januarys have been followed by "a new or continuing bear market, a 10% correction or a flat year"–the probability of one of those events occurring in any year seems high. Note that those events are cited to partially excuse the wrong forecasts of 2009 and 2010. I assume the accuracy ratios are calculated using the usual wrong method of comparing the change in January to the change in the whole year, including January.

As January Goes, so Goes the Year, Jeffrey A, Hirsch, Editor

Devised by Stock Trader's Almanac founder Yale Hirsch in 1972, the January Barometer predicts that stock market performance during the month of January sets the direction for the entire year. In fact, every down January for the S&P 500 since 1950 has been followed by a new or continuing bear market, a 10% correction or a flat year.

Despite major errors the last two years, this indicator still boasts an 88.5% accuracy ratio. Even including the seven flat-year errors, where the S&P closed the year in the opposite direction of January, but was up or down less than 5% for the year, the JB still delivers a
77.0% accuracy ratio.

We don't know of many indicators with such a strong track record Of the last three down Januarys: 2008 was followed by a continuing bear market and a down year; 2009 was also followed by a continuing bear and an 18.1% S&P decline from January to the March low, but an up year; and 2010 was followed by a 16% correction from April to July and an up year.

Last week's uprising in Egypt shuttered economic activity in that country, jolted worldwide stock markets and heightened Mideast tensions. But despite the rumor of 1 million protesters gathering tomorrow in Egypt, calm has returned to Wall Street on the last trading day of January, registering the first positive January for the S&P 500 in three years.

Prior to the Egyptian civil unrest, on the wave of $600 billion in additional quantitative easing, the rally gathered momentum in December that has carried over into January. Both our Santa Claus Rally and First Five Days Early Warning System delivered solid gains. Despite Friday's selloff on the news of clashes in Egypt the losses were not catastrophic and the market has held on to January's gains.

Even without the trouble on the Suez Canal a market correction was brewing. Unless the situation spirals out of control in Egypt and other Mideast hotspots, the often typical late-January/February break will give way to a continuation of the rally we projected in our 2011 Annual Forecast last month to Dow 13,000-14,000 in the first half of
2011. We expect any break to be about 5% and bounce off the 50-day moving averages of about 1,245 on the S&P, 2,640 on NASDAQ and 11500 for the Dow. Our forecast remains on track and after some pause in February we expect the market to flirt with the 2007 highs before succumbing to another seasonal soft patch in the May-October period.

(31-Jan-11)

Victor Niederhoffer writes:

One can always make a fortune by speculating based on patterns that worked 11 to 20 years ago as opposed to the last 10 years. See hallmarks of pseudo science in edspec, and Martin Gardner's Fads and Fallacies in the Name of Science.


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