Saturday, January 14, 2006

It's Africa hot!

While the title also roughly describes the past week's weather here in the New York area, I was actually referring to what the January barometer might (emphasize 'might') indicate for 2006.

As reported on CNBC by Mary Thompson:

- "Since 1950, the S&P's January performance, up or down, has correlated with its full year performance 44 out of 56 years, or 78.5% of the time."

- "According to The Stock Trader's Almanac, every down January since 1950 preceded a new or extended bear market or a flat market."

- "Some look at the first 5 days of trading as a barometer of the S&P's full year performance. The last 35 up first-5-days for the S&P were followed by full year gains 30 times. That works out to an 85.7% accuracy ratio. The last 21 down first-5-days split, they were followed by 11 up and 10 down years."

- "There is yet another way to play this January barometer. Standard & Poor's Sam Stovall says since 1970 buying an evenly weighted portfolio of January's top 10 performing sectors of the S&P, gives you a very good chance of beating the index for the rest of the year. [Sam Stovall quote: 'If you select the best performing industries for the month of January and hold them from February through end of December, you would significantly outperform the S&P 500, improve your risk adjusted return, and show a frequency of outperformance of about 75%.'] And when the S&P finished the year higher, this portfolio outperformed the index on a historical basis 16.9% to 6.9%."

But before you go too crazy with this, keep in mind that in the past 5 years we've broken all kinds of market truisms.

Have a nice year.


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