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January Almanac: 87.5% of Pre-Election Years Follow January’s Direction
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By:
Jeffrey A. Hirsch & Christopher Mistal
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December 16, 2014
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January has quite a legendary reputation on Wall Street as an influx of cash from yearend bonuses and annual allocations typically propels stocks higher. January ranks #1 for NASDAQ (since 1971), but fifth on the S&P 500 and sixth for DJIA since 1950. It is the end of the best three-month span and possesses a full docket of indicators and seasonalities.
DJIA and S&P rankings did slip from 2000 to 2014 as both indices suffered losses in eight of those fifteen Januarys with three in a row, 2008, 2009 and 2010. January 2009 has the dubious honor of being the worst January on record for DJIA (-8.8%) and S&P 500 (-8.6%) since 1901 and 1931 respectively. After three straight gains from 2011 to 2013, last year DJIA and S&P 500 were off 5.3% and 3.6% respectively in January.
On pages 106 and 110 of the Stock Trader’s Almanac 2015 we illustrate that the January Effect, where small caps begin to outperform large caps, actually starts in mid-December, this week. Early signs of this existed today with iShares Russell 2000 (IWM) outperforming the SPDR S&P 500 (SPY). The majority of their outperformance is normally done by mid-February, but strength can last until mid-May when most indices reach a seasonal high.
The first indicator to register a reading in January is the Santa Claus Rally. The seven-trading day period begins on the open on December 24 and ends with the close of trading on January 5. Normally, the S&P 500 posts an average gain of 1.5%. The failure of stocks to rally during this time tends to precede bear markets or times when stocks could be purchased at lower prices later in the year.
On January 8, our First Five Days “Early Warning” System will be in. In pre-presidential election years this indicator has a solid record. In the last 16 pre-presidential election years 12 full years followed the direction of the First Five Days; however, 2007 and 2011 did not. The full-month January Barometer has an even better pre-presidential-election-year record as 14 of the last 16 full years have followed January’s direction.
Our flagship indicator, the January Barometer created by Yale Hirsch in 1972, simply states that as the S&P goes in January so goes the year. It came into effect in 1934 after the Twentieth Amendment moved the date that new Congresses convene to the first week of January and Presidential inaugurations to January 20.
The long-term record has been stupendous, an 87.7% accuracy rate, with only eight major errors in 65 years. Major errors occurred in the secular bear market years of 1966, 1968, 1982, 2001, 2003, 2009, 2010 and possibly 2014. The market’s position on January 30 will give us a good read on the year to come. When all three of these indicators are in agreement it has been prudent to heed their call.
| January (1950-2014) |
| |
DJI |
SP500 |
NASDAQ |
Russell
1K |
Russell 2K |
| Rank |
|
6 |
|
5 |
|
1 |
|
4 |
|
2 |
| #
Up |
|
42 |
|
40 |
|
29 |
|
23 |
|
20 |
| #
Down |
|
23 |
|
25 |
|
15 |
|
13 |
|
16 |
| Average
% |
|
1.0 |
|
1.1 |
|
2.9 |
|
1.1 |
|
1.8 |
| 4-Year Presidential Election Cycle Performance
by % |
| Post-Election |
|
0.7 |
|
0.7 |
|
2.2 |
|
1.6 |
|
2.0 |
| Mid-Term |
|
-0.9 |
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-1.0 |
|
-.07 |
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-1.3 |
|
-0.9 |
| Pre-Election |
|
4.2 |
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4.3 |
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7.3 |
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3.6 |
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3.9 |
| Election |
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0.3 |
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0.5 |
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2.6 |
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0.7 |
|
2.3 |
| Best & Worst January by % |
| Best |
1976 |
14.4 |
1987 |
13.2 |
1975 |
16.6 |
1987 |
12.7 |
1985 |
13.1 |
| Worst |
2009 |
-8.8 |
2009 |
-8.6 |
2008 |
-9.9 |
2009 |
-8.3 |
2009 |
-11.2 |
| January Weeks by % |
| Best |
1/9/76 |
6.1 |
1/2/09 |
6.8 |
1/12/01 |
9.1 |
1/2/2009 |
6.8 |
1/9/87 |
7.0 |
| Worst |
1/24/03 |
-5.3 |
1/28/00 |
-5.6 |
1/28/00 |
-8.2 |
1/28/00 |
-5.5 |
1/4/08 |
-6.5 |
| January Days by % |
| Best |
1/17/91 |
4.6 |
1/3/01 |
5.0 |
1/3/01 |
14.2 |
1/3/01 |
5.3 |
1/21/09 |
5.3 |
| Worst |
1/8/88 |
-6.9 |
1/8/88 |
-6.8 |
1/2/01 |
-7.2 |
1/8/88 |
-6.1 |
1/20/09 |
-7.0 |
| First Trading Day of Expiration Week: 1990-2014 |
| #Up-#Down |
|
16-9 |
|
12-13 |
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12-13 |
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11-14 |
|
11-14 |
| Streak |
|
D1 |
|
D2 |
|
D2 |
|
D2 |
|
D2 |
| Avg
% |
|
0.001 |
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-0.02 |
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0.03 |
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-0.04 |
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-0.01 |
| Options Expiration Day: 1990-2014 |
| #Up-#Down |
|
14-11 |
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13-12 |
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12-13 |
|
13-12 |
|
13-12 |
| Streak |
|
U4 |
|
D1 |
|
D5 |
|
D1 |
|
D1 |
| Avg
% |
|
-0.1 |
|
-0.1 |
|
-0.2 |
|
-0.1 |
|
-0.2 |
| Options Expiration Week: 1990-2014 |
| #Up-#Down |
|
13-12 |
|
9-16 |
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14-11 |
|
9-16 |
|
13-12 |
| Streak |
|
U4 |
|
D1 |
|
U3 |
|
D1 |
|
U3 |
| Avg
% |
|
-0.3 |
|
-0.3 |
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-0.04 |
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-0.3 |
|
-0.1 |
| Week After Options Expiration: 1990-2014 |
| #Up-#Down |
|
11-14 |
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14-11 |
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12-13 |
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14-11 |
|
17-8 |
| Streak |
|
D1 |
|
D1 |
|
D1 |
|
D1 |
|
D1 |
| Avg
% |
|
-0.5 |
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-0.3 |
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-0.2 |
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-0.3 |
|
0.02 |
| January 2015 Bullish Days: Data 1994-2014 |
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2,
5, 15 |
5,
9, 15 |
2,
9, 12, 16 |
6,
9, 12, 15 |
8, 9, 15, 16 |
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27,
28 |
16,
28, 30 |
20,
27, 28 |
27,
28 |
27, 28, 30 |
| January 2015 Bearish Days: Data 1994-2014 |
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8,
20-23 |
21 |
21,
22 |
21 |
21, 26 |
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