First Five Days Early Warning Official Results: Sharp Two-Day Rally Brightens 2015 Prospects
By: Christopher Mistal
January 08, 2015
Whew! Wow, the snapback rally over the past two and half days has put the S&P 500 positive by two hairs for January’s First Five Days. After failing to deliver a Santa Claus Rally (SCR), the S&P 500 has roared back over the past two days to post a meager  0.2% gain during the First Five Days of January. The last 41 up First Five Days (FFD) were followed by full-year gains 35 times for an 85.4% accuracy ratio and a 14.0% average gain in all 41 years. The six exceptions include flat 1994 and 2011 plus four related to war. Vietnam military spending delayed start of 1966 bear market. Ceasefire imminence early in 1973 raised stocks temporarily. Saddam Hussein turned 1990 into a bear. The war on terrorism, instability in the Mideast and corporate malfeasance shaped 2002 into a tough year.
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 (STA 2015, page 16) has an even better record as 14 of the last 16 full years have followed January’s direction.

A positive FFD has improved the outlook for 2015 following a down SCR. This will be just the fourth time since 1950 that the S&P 500 has recorded this combination. The worst full-year outcome was flat midterm year 1994. We will withhold further judgment until the January Barometer gives its official reading at month’s end.  The December Low Indicator (2015 STA, page 44) should also be watched with the line in the sand the Dow’s December Closing Low of 17068.87 on 12/16/14.

[S&P 500 January Early Indicator Trifecta Table]