Getting back to the January barometer

As Wikipedia puts it:

The January Effect is a calendar-related anomaly in the financial market where financial security prices increase in the month of January. This creates an opportunity for investors to buy stock for lower prices before January and sell them after their value increases.

This well know market anomaly called the January Effect was being pulled all over the front pages by many bullish analysts and journalists while the markets were rising higher in the early days of Jan.

And then, there's January Barometer that they used way before the end of Jan, just to say why the markets would keep on going even higher: "As goes January, so goes the rest of the year"

Quoting Babak over at Trader's Narrative, some people really got ahead of the markets and themselves:

According to market historian John K. Harris, the “barometer seems even more ‘reliable’ following years when the market reached a high in late December.” [as it did in 2009]:

In the 82-year history of the S&P 500 index, a year’s high has occurred in December 25 times, says Harris. For the 24 excluding ‘09, 18 were followed by positive Januarys, and the average return for those years was 17.2%. Six of the 24 were followed by negative Januarys, and the average return for those years was -3.5%.


The year’s high has occurred after Christmas 14 times, Harris says. Again, the most recent case is 2009. The prior 13 years that had a post-Christmas high were followed by nine positive Januarys, and the average return for those years was 19.4%. Four of the 13 years were followed by negative Januarys, and the average return for those years was a mere 0.6%.

(Blogger doesn't allow for quotes within quotes, so I italicized them instead)

Well, Babak also published some interesting results of his research: the January barometer has been accurate 72.86% of the times, since 1940.

The Bull's tool has since then become the Bear's tool now: according to that barometer, there's a fair probability of have a decline in 2010, which is the event I am positioned for.