Proving Grounds: Positive January Indicator Trifecta Hails Upside
By: Jeffrey Hirsch
January 24, 2017
A rather interesting and insightful inquiry was posed on our Twitter feed by devout follower @WayneYJacksonII and we address here today in the Almanac Investor “Proving Grounds.” Mr. Jackson posed the question after I discussed the January Indicator Trifecta on CNBC Squawk Box two weeks ago. He asked, “Has your team run statistics if we should sell in April if all 3 green lights appear, and hold till '18?”
In recent years we have been rather impressed by the forecasting prowess of this January Indicator Trifecta, which combines the Santa Claus Rally, the First Five Days Early Warning System and the full-month January Barometer. The predicative power of the three is considerably greater than any of them alone. So in honor of the savvy of this question and the efficacy of the Trifecta, our Best Six Months Switching Strategy and the Four-Year Presidential Election Cycle, we present the amalgamation of all three trends.
My initial response was that 2017 is a post-election year and it’s usually advisable to heed our “Worst 6 Months” strategy after we issue our Best Six Months MACD Seasonal Sell Signal to sell losers and underperforming positions, hold big winners and take defensive positions appropriately. Upon further review I felt that response was a bit glib and professed internally to run the data and share our findings with subscribers first.
In the following two tables we have laid out all the years since 1949, which was the first full post-election year following the end of WWII in 1945. The first table is all years broken out by year of the four year cycle. The second table shows just the years that the Trifecta was positive for all three also broken out by year of the cycle so we can compare the impact of a positive Trifecta.
Post-election years benefit most followed by Midterm years and Elections years. Pre-Election years have such a bullish bias a positive Trifecta has little impact. Notable years that were negative after a positive Trifecta were: 1966 Vietnam escalation, 1987 Crash, and 2011 US government budget and political battles.
So the answer to the query, should we sell in April/May 2017 if all three January Trifecta indicators are positive, is it does not seem as urgent. But we would stick with the program. While a positive Trifecta shows big gains for the Best Six Months, Worst Six Months, the following eleven months as well as the full year, there is a still a greater risk with a newly elected republican presidency. So while a positive Trifecta bodes well for the year, we will take precaution as we approach the Worst Six Months and get our Sell Signal and take off risk, while holding big winners and assess defensive positions prudently.
[CHART of POSITVE Trifectas]