January Barometer +VE, But Flows Not In Cooperation Despite Massive Jan Rally

January barometer, if comes to pass, bodes well for this year. The S&P 500 is up nearly 16 percent from the December 26 low. It is deeply overbought.  Once unwinding begins, bulls hope bids show up at resistance-turned-support at 2600-2630. Although flows leave much to be desired.

The verdict is in. The so-called January barometer, which posits that how January fares sets the tone for the year, bodes well for the rest of the year. At least equity bulls hope so. The S&P 500 large-cap index jumped 7.9 percent in the opening month. Of course, there is no guarantee that the phenomenon will come to pass. It did not last year. Last year, January was up 5.6 percent, but the year ended down 6.2 percent. That said, its track record is pretty good.

Chart 1 looks at the S&P 500 annual returns going all the way back to 1951, with an apparent question mark for 2019.

The data is divided into four buckets: (1) years that were up when January was up, (2) years that were down when January was up, (3) years that were down when January was down, (4) years that were up when January was down. In parenthesis is the number of years for each bucket.

Of the 68 years covered, the barometer came to pass in 50. Orange bars simply jump out in the chart. They represent the years in which the S&P 500 was up for the year after a positive January. The blue ones correspond to the ones in which the year ended in the red even though January was up. Since 1951, this has only occurred five times; plus, the S&P 500 has not dropped in two successive years after a positive January. In this respect, bulls have history on their side, but you never know.

This much we know.

Not only did the S&P 500 get out of the blocks really strong in January but it already rallied just under 16 percent since the low on Boxing Day. In so doing, bulls have managed to repair quite a bit of the damage suffered during the three-month decline that began early October.

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Disclaimer: This article is not intended to be, nor shall it be construed as, investment advice. Neither the information nor any opinion expressed here constitutes an offer to buy or sell any ...

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