First Five Days Positive—Full-Year Prospects Further Improve
By: Jeffrey A. Hirsch & Christopher Mistal
January 08, 2018
Even though today turned out to be a mixed day for the market (DJIA down, S&P 500 and NASDAQ up), S&P 500 is still positive year-to-date (2.8%) and thus our First Five Day (FFD) early warning system is also positive. Combined with last week’s positive Santa Claus Rally (SCR), our January Trifecta is now two for two. The January Trifecta would be satisfied with a positive reading from our January Barometer (JB) at month’s end.
[S&P 500 January Early Indicator Trifecta Table]
The best case, most bullish scenario is when all three indicators, SCR, FFD and JB, are positive (in table above). In 29 previous Trifecta occurrences since 1950, S&P 500 advanced 89.7% of the time during the subsequent eleven months and 93.1% of the time for the full year. However, a January Indicator Trifecta does not guarantee the year will be bear free. The three losing “Last 11 Mon” years, shaded in grey, experienced short duration bear markets (2011, S&P 500 –19.4% peak to trough).
Even if S&P 500 was to suddenly reverse course and finish the full month in the red, the prospects for the next eleven months and the full year remain quite high. Of the last 39 years since 1950 that the SCR and FFD were both positive, the next eleven months and full year advanced 87.2% of the time with gains of 11.5% and 14.0% respectively.
A positive SCR and FFD are encouraging and further clarity will be gained when the January Barometer (page 16, STA 2018) reports at month’s end. A positive January Barometer would further boost prospects for full-year 2018. The December Low Indicator (2018 STA, page 38) should also be watched with the line in the sand at DJIA’s December Closing Low of 24140.91 on 12/6/17.