By James Dines
The Dines Letter
1) In the 54 Januarys since 1950 the Dow-Jones Industrial Average (DJI) has risen 37 times and declined 17 times, bullish almost seven out of ten times (69%).
2) Action of the first trading week of January and the month as a whole both appear to have some predictive value for the overall market.
A. S&P: There is a correlation between the rise of the S&P in its first 5 trading days of the year with its rise for the whole year. In the last 34 Januarys, whenever the S&P 500 index rose in its first five days, the S&P 500 rose for the year 29 times, for an 85.3% consistency. In the 5 times it did not work, meaning the S&P 500 closed lower for the year, it is interesting to note that 4 of those years were extraordinarily bearish: 1966 and 1973 were Vietnam War years, 1990 was the year of "Desert Storm," and 2002 was the aftermath of 9/11. However, unexpectedly, when the first 5 days of the S&P 500 declines, as it did 20 times since 1950, the year-end results were split 50:50, hence no correlation. So a rising first week is the action to watch for: the dates are Jan 3 to 7 in 2005.
B. Dow-Jones Industrial Average: Our Research Department found that in the 22 times in the last 31 Januarys whose first 5 days were up, it led to Dow up years 71% of the time, less impressive than the S&P 500's 85.3%, but nonetheless meaningful. Similar to the S&P 500, when the Dow's first five days ended lower (a total of 12 times since 1961), there was no correlation to its year-end result, and is not useful as a guide. Conclusion: only rising first weeks carry useful correlations.
3) Popularly known as the "January Barometer," the entire month of January has gained prominence as one of the market's foremost bellwethers. Briefly, whatever happens to markets in the entire month of January often points to the direction of the entire year. As for the S&P 500, records show an almost perfect match between its January performance and its end-of-year performance in every odd-numbered year, all 31 of them, from 1939 to 2003! (This correlation was broken only in 2001 when the S&P 500 was up in January but down for the year). If we look at even-numbered years only, there is no useful correlation - only 11 out of 33 were predictive.
Turning to the DJI, in 21 of 27 odd-numbered years (78% of the time) there was a match between its January and end-of year performance. In even-numbered years, 18 out of 26 (69%) move together, also pretty accurate. Adding another dimension to our comparison, records show that of the Dow's 17 declining Januarys, 12 likewise ended in declines (71% of the time). For the S&P 500's record, of 18 down Januarys, 11 were followed by down years (61% of the time).
In conclusion, an up January would be bullish for the market, especially if both the first 5 trading days and the whole month were also up. As to January's predictive ability, the S&P 500 has proven especially dependable in odd years. If both the DJI and the S&P 500 decline this January, the DJI would be more likely to end lower for all of 2005.
4) As for the Dines Gold Stock Average (DIGSA) 37 Januarys since 1968 included 22 rises, 14 declines, and one neutral, for a 61% bullish record, confirming the validity of the Dines Rule of Gold Seasonality (DIRGS), Dinesism #9.
Interestingly, the Dines Silver Stock Average's (DISSA) down Januarys show a remarkable accuracy ratio in terms of having predicted silver's direction for the rest of the year. Specifically, of the 10 Januarys in which DISSA was a downer, no fewer than 8 of them resulted in down years for DISSA. On the other hand, the rising Januarys for DISSA only worked around half the time, with 14 up years out of the 26 Januarys - not statistically helpful.
In conclusion, January is usually a bullish month for gold and silver shares, but if DISSA declined in January that would be a serious negative factor for silver-mining shares for all of 2005. As always, note that there are no stock-market guarantees, only the percentages used in our "educated guesses.
Editor's Note: James Dines, editor of The Dines Letter, P.O. Box 22, Belvedere, CA 94920, 1 year, 17 issues, $195, since 1960, has been making recommendations to investors for over 40 years. Recommendations of The Dines Letter are based on mass psychology, technical and fundamental economics; thus studying both the company and investor behavior. Mr. Dines' insights have gained him a reputation as a well renowned, highly respected and regarded investment advisor.
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