January Barometer & More

Updating the January Barometer, distinguished from the January effect that compares small-cap stock performance to large caps, the January Barometer uses the DJ Industrial Average or the S&P 500 Index. According to the Stock Trader’s Almanac January’s S&P 500 Index close, up or down determines the likely direction of the for the year. Adding last year’s down close to the record puts another “Wrong ” in the result column.

Here is the record since 2008.

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While this indicator produces mixed results for the years when January closes lower, the record for predicting higher closes for the years when January closes higher is 88% going back to 1950, based data from the Stock Trader’s Almanac. Since 2008, this indicator has been “Wrong” six out of eleven years, not very good odds.

However, Tom McClellan says the January Barometer has correctly predicted the correct results for the DJ Industrial Average 75% of the time since 1928, and 64% of the time since 2000.

After last Wednesday's comments by Federal Reserve Chairman Jay Powell, the bear market label initiated in Digest Issue 1 "Bear Trap Door [Charts]" now looks less and less applicable. Indeed, Jay Powell seemed to say the Fed disengaged the balance sheet run-off autopilot that triggered the year-end selling panic

S&P 500 Index (SPX) 2706.53 gained 41.77 more points or +1.57% last week, including breaking out from a small symmetrical triangle consolidation pattern Thursday, confirmed by increased volume of 3.3 billion combined shares. Now well above the 50-day Moving Average at 2609.06 and the operative downward sloping trendline from the October 3 high at 2939.80 that didn't slow the advance. The next resistance will be at the 200-day Moving average now 2741.47. Several analysts continue anticipating an attempt to retest the December low since that has been the pattern after all the significant declines after 2009. Even the V bottom that started in March 2009 finally pulled back somewhat in early July 2009.

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Disclaimer: IVolatility.com is not a registered investment adviser and does not offer personalized advice specific to the needs and risk profiles of its readers.Nothing contained in this letter ...

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