THE DOT - if this turns orange or red be alert

Saturday, January 31, 2009

The January effect - a statistical confirmation of common sense for this year

In the second quarter many people might think how foolish they were to be so negative and how could they have missed such a great opportunity actually that just the other way round the likely rising markets in Q2 are the last exit to get rid of stocks before the biggest money distruction in history might start. By summer the last bullet of the bulls will be shot and all whats left will be hope that a miracle saves the day in Q4 of 2009. Governments will have spent trillions to bailout banks but as they have hundreds of trillions in obligations that will not do the trick. Fact is that wall street destroyed more money in 2 years than they made in a century alltho─▒ugh that's not entirely true as they have swaped away prior losses by derivatives to later dates in hope to regather the lost money probably or rather be able to capitalise on unreal profits to pay out themselves undeserved bonus payments.

Excerpt from CNBC

The January Effect Looks Grim

"As goes January, so goes the year" is a common adage on the street. If that is the case, we are in for a tough rest of the year for the markets. As of Friday's close, the Dow [.DJIA 8000.86 -148.15 (-1.82%) ], S&P [.SPX 825.88 -19.26 (-2.28%) ] and Nasdaq [COMP 1476.42 -31.42 (-2.08%) ]were down 8.84%, 8.75% and 6.38% for the month respectively.

Historically, January has been one of the best months of the year for the Dow, S&P and Nasdaq and the likelihood of having an up year is consistent with the likelihood of having an up January. In fact, each of the major indices moves in the same direction that January moved over 70% of the time. Here are the details.

Dow (Since 1897):

  • January: Up 65.2% of the time, down 34.8% of the time
  • Full Year: Up 64.0% of the time, down 36.0% of the time
  • Full year moves in the same direction as January 72.3% of the time

S&P 500 (Since 1929):

  • January: Up 65.0% of the time, down 35.0% of the time
  • Full Year: Up 63.8% of the time, down 36.2% of the time
  • Full year moves in the same direction as January 76.3% of the time

NASDAQ (Since 1972):

  • January: Up 67.6% of the time, down 32.4% of the time
  • Full Year: Up 69.4% of the time, down 30.6% of the time
  • Full year moves in the same direction as January 75.7% of the time

All is not lost. The last time the year moved in the opposite direction of January was 2005, when January closed to the downside but the year finished with a modest gain. 2003 was even better; January closed down for all three indices but the year posted gains over 25%.

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