January Barometer 2021 Official Results: January Trifecta Thwarted
By: Jeffrey A. Hirsch & Christopher Mistal
January 29, 2021
Today’s market decline cancelled the bullish January Indicator Trifecta. Regardless of where the blame falls for today’s sell off, the market had gone quite a distance in a relatively brief period of time and valuations and technical readings in many areas of the market were stretched. S&P 500 finished January down 1.1% and thus the January Barometer is negative.
Devised by Yale Hirsch in 1972, the January Barometer has registered eleven major errors since 1950 for an 84.5% accuracy ratio. This indicator adheres to propensity that as the S&P 500 goes in January, so goes the year. Of the eleven 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. In 2016, DJIA slipped into an official Ned Davis bear market in January. The eleventh major error was last year, 2020. Including the eight flat years yields a .732 batting average.
The near-term outlook for the market has diminished as every down January (page 20 Stock Trader’s Almanac 2021) since 1950 was followed by a new or continuing bear market, a 10% correction or a flat year. However, it is challenging to envision a full-blown bear market with the Fed keeping a close eye on the market and the new administration working on additional fiscal stimulus.
[Trifecta Mixed Table]
This year’s combination of a positive Santa Claus Rally and First Five Days with a full-month January loss has only occurred twelve times (including this year) since 1950. In the previous eleven occurrences S&P 500 was down seven times in February with an average loss of 2.2%. However, over the remaining 11 months of the year, S&P 500 advanced 81.8% of the time with an average gain of 8.2%. Full-year performance was positive 72.7% of the time, but with an average gain of 4.1%.
Because we do not rely solely on a single indicator or pattern, DJIA’s December closing low of 29823.92 is still a key level to be watched. Lacking the backup of other patterns and indicators, today’s last day of January reversal could be entirely due to the less than expected results from J&J’s vaccine. Any developments over the weekend and the market’s response next week will be key as to whether or not recent market weakness manifests into a deeper pullback or correction.