By James Dines
The Dines Letter
In the 57 Januarys since 1950 the Dow-Jones Industrial Average (DJI) has risen 39 times and declined 18 times, bullish over two out of three times (68%).
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 500 in its first 5 trading days of the year and its rise for the whole year. In the last 36 up Januarys, whenever the S&P 500 rose in its first five days, the S&P 500 index rose for the year 31 times, for an 86% consistency. In the 5 times it did not work, meaning when 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 result in a decline, as it did 22 times since 1950, the year-end results were split almost 50:50, hence correlation. So a raising first week is the action to watch for: the dates are Jan 2 to 8 in 2008.
B. Dow-Jones Industrial Average: Our research Department found that in the 24 times in the last 33 Januarys whose first days were up, it led to Dow up years 73% of the time, less impressive than the S&P 500's 86%, but nonetheless meaningful. Similar to the S&P 500, when the Dow's first five days ended lower (a total of 13 times since 1961), there was no correlation to its year-end result, and is not useful as a guide. Conclusion: only rising first weeks show a bullish correlation.
C. Popularly known as the "January Barometer," the entire month of January has gained prominence as one of the market's foremost bellwethers. Briefly, whichever direction markets go the entire month of January often points to the direction of the entire year. For example the S&P 500 shows 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 and 2005). If we look at even-numbered years only, there is no useful correlation - only 13 out of 35 were predictive.
Turning to the DJI, there was a match between its January and end-of-year performance in 22 of 28 odd-numbered years (79% of the time). In even-numbered years, 20 out of 28 (71%) moved together, also moderately accurate. Adding another dimension to our comparison, records show that of the Dow's 18 declining Januarys, 13 likewise ended in declines (72% of the time). For the S&P 500's record, of 19 down Januarys, 11 were followed by down years (58% of the time).
In conclusion, an up January would be bullish for the market, especially if the first 5 trading days were up also. 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 2008.
As for the Dines Gold Stock Average (DIGSA), 40 Januarys since 1968 included 23 rises, 16 declines, and one neutral, for a 59% bullish record, confirming the validity of Dinesism #9 (DIRGS), the Dines Rule of Gold Seasonality.
Interestingly, the Dines Silver Stock Average (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 11 Januarys in which DISSA was a downer, no fewer than 9 of them resulted in down years for DISSA. On the other hand, the rising Januarys for DISSA only worked around half the time, with 16 up years out of the 28 Januarys - not statistically helpful.
In conclusion, January is usually a bullish month for gold and silver shares, but if DISSA declines in January that would be a serious negative for silver-mining shares for all of 2008. As always, note that there are no stock-market guarantees, only the percentages used in our "educated guesses." More Seasonalities in the next TDL, our Annual Forecast Issue!
Editor's Note: James Dines is editor of The Dines Letter, P.O. Box 22, Belvedere, CA 94920, 1 year, 14 issues, $295. www.DinesLetter.com
