The January Barometer Debunked!
By Barry Arnold, editor
The Primary Trend
Asked
by a CNBC reported if he is worried since January was a down
month that it will be a precursor to a down year in 2003, market
veteran Art Cashin replied: "It's like when you hear hoof
beats behind you, you think it's got to be a horsewell, it could
be a zebra."
In his off-key, yet
infinite wisdom, Mr. Cashin succinctly explains the stock market.
The market will do what the market wants to do it has no predefined
script. In this case, he was referring to Wall Street's misguided
reliance on the January Barometer: "As January goes, so
goes the year."
Well, January experienced
a loss of 3.45% as measured by the Dow Jones Industrial Average.
Should we expect negative returns in the next 11 months as well?
We did some number crunching that encompasses the past 106 years
(1897 2002) of history on the Dow and conclude the following
regarding the January Barometer.
January's direction
successfully predicted the direction of the market in the subsequent
11 months only 64% of the time (68 out of 106. Of the 68 "successes",
49 were positive and 19 negative).
When January was negative
(37 times), as it is this year, the January Barometer has a success
rate of only 51% virtually a coin flip.
Of the 19 times that
a negative January Barometer succeeded, the stock market lost
an additional 10.8% over the remaining 11 months.
However, of the 18
times that January was negative and the January Barometer failed,
the stock market gained 17.6% in the ensuing 11-month time frame.
The statistical significance
and predictive powers of the January Barometer is a myth. This
time it may very well be a zebra. We would rather reply on the
logic of the super Bowl Indicator and in this case, 2003 should
belong to the bulls since the NFC Tampa Bay Buccaneers routed
its AFC counterpart.
Editor's Note: Barry
Arnold is editor of The Primary Trend, 700 North Water
Street, Milwaukee, WI 53202. 1 year, 12 issues $80. Published
by Arnold Investment Council, which provides investment counseling/portfolio
management services to clients and to The Primary Trend family
of no-load mutual funds. Visit the web site at www.primarytrendfunds.com.
