Devised by Yale Hirsch in 1972, the January Barometer has registered eight major errors since 1950 for an 87.7% accuracy ratio. This indicator adheres to propensity that as the S&P 500 goes in January, so goes the year. Of the eight major errors Vietnam affected 1966 and 1968. 1982 saw the start of a major bull market in August. Two January rate cuts and 9/11 affected 2001.The market in January 2003 was held down by the anticipation of military action in Iraq. The second worst bear market since 1900 ended in March of 2009 and Federal Reserve intervention influenced 2010 and 2014. Including the eight flat years yields a .754 batting average.

It’s official; our January Barometer indicator is negative again for the second year in a row and 5 of the last 8 years. Since the start of the secular bear market in 2000 January has been down 7 of the last 15 years with an average loss of 1.2% on the S&P and Dow and a fractional gain of 0.1% for NASDAQ. Five of the indicators eight major errors have occurred in this 15-year timeframe as mentioned above. 

All of the major errors have occurred in secular bears, so if we still are in a secular bear market, which we contend we are; perhaps we can find some solace in this fact. We are continually reevaluating the efficacy of the January Barometer as we do with all indicators, market cycles and seasonal patterns. But it is way too early to relegate the JB to the indicator graveyard. It’s .754 batting average is solid.

Nevertheless, the market action so far this year is disconcerting. But we are not rushing for the exits. Technically the market has held support at the 200-day moving averages and is only down 5% or so. In the face of all the red numbers NASDAQ is only down 4% from the December high. There has been a broad mix of positive and negative data and news and the market is clearly jittery. 

The new Republican controlled Congress is preparing to battle a lame duck president as the 2016 election campaign is already beginning with players are jockeying for positon. Russia is in shambles as they threaten to destabilize Europe and ISIS is still terrorizing the world, etc. However, while GDP growth missed estimates it was still growth. Earnings have been better than the headlines and the US economy looks OK, not great, but OK. 

Look, it is highly likely we will have another bear market that begins sometime in the next three years, perhaps even this year. It just does not appear to be happening now. So while we expect the upside to resume, this negative January Barometer has made us more cautious. We will be watching for the Dow’s December closing low to hold and looking for technical, fundamental and macro breakdowns. The Federal Reserve’s continuing super-easy monetary policy continues to hold sway over the market, but with QE over in the USA and a rate increase on horizon, extreme prejudice is in order.

Also of note, this is the first time since 1950 our January Indicator Trifecta has registered a down Santa Claus Rally, an up First Five Days and a down JB…