Now that January is over it is time to comment on the January Barometer - the concept that the market’s performance is indicative of what WILL happen for the remainder of the year. By the way, it’s not the same as the January Effect which many people like to confuse interchangeably. Like other historical observations that somehow become “indicators”, the January Barometer is fun to look at, but I really hope that no one actually uses it to place any trades or risk capital in any way. In fact, I am at a loss to figure out how relevant these things are other than as filler for newspapers, financial tv programs and other media.

Typically, we start hearing about the January Barometer on the first trading day of the year and then we evaluate it increasingly as the month expires. I’ve noticed that if the Barometer is positive, Permabulls love to use it to “prove” their point. When the January Barometer is negative, they bring out a myriad of exceptions to say why the indicator should be given an exception for that year. Strangely, I rarely, if ever, hear bears reference the Barometer regardless of whether it is consistent with their view. Since 1950, the Barometer has been correct 44 out of 56 times (or 79%) which is a pretty great winning percentage for the investing world. However, it was wrong in 2001, 2003 and 2005 (or 40% correct) which is NOT a pretty great winning percentage for the most recent 5 years. I have no idea how it will do this year, but it will not pressure any signals at Hedgefolios, and I hope it doesn’t change what you do either.

Since I am on the topic and the Superbowl is a few days away, I find the Superbowl Indicator equally fun to look at and important to ignore. The same goes for the Hemline Indicator, the Presidential Cycle, the Year 5, the “Sell in May and Walk Away” strategy, etc. If you are interested in these novelties, I highly recommend reading the Stock Trader’s Almanac and then hopefully you will put it away and get back to evaluating market strength, sector strength, economic reports, geopolitics, earnings reports, fundamental valuations, technical indicators, and all the other things that are definitely relevant to what affects stocks for the rest of the year.