Thursday, February 5, 2009

January Barometer

The January barometer is a well known study that is often referred to. It states that “as goes January, so goes the year”. In other words, if January closes down, there is a good chance the entire year will close down. Of course the bear case has a head start. I decided to eliminate that head start and look at performance from the end of January forward. Below performance is shown from the end of January to the end of the year. I used the Dow Jones Industrial Average from 1920 – today. Dividends are not taken into account.
(click table to enlarge)

What strikes me here is that wins and losses are almost dead even – for all 11 time frames. When considering your trading approach from now through the end of the year I wouldn’t worry too much about January’s performance.

2 comments: said...

Exactly, it´s about 50/50 for a downyear or upyear when January ends down. That is interesting though because it indicates a weaker market than usual. The January Barometer is the most interesting when January ends up though, which gives a plusyear in something like 75-85% of the instances.

So, January down: weak market but 50/50 if it ends up or down for the year. And since the market lost pretty much in January it could still end lower for the year but higher than it was at the end of January.

January up: strong market, strong probability for an upyear.

trader said...

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Best Regards,

Newton P. Linchen