Jan

3


We have all had a new beginning at some point. Perhaps it was the first day of school, the first day on a job, or a first date. Perhaps it was the first game with a new world champion, the opening match of a big tournament, or the first time we try a new shot, pitch, or variation. You have to hand it to the Market Mistress, that she always gives us a truly extraordinary experience on the first day of the year. Just take the following:

She opened at 1231, just up two on the day, and down eight from the overnight low, then she promptly went down two in the first minute, and then up ten (to above the close of the last six years), and then down 22 to below the lowest close since December 1st, registering a price that would have been the first 20 day low that we have witnessed in six months. She then followed the path of least resistance, going up eight from there in a half hour, and finally closing down 3.6 on the day in futures, and down 1.7 on the day in the index.

It was truly a staggering, startling, scintillating opening day performance. Remember to bear in mind the life threatening moves, the emotions elicited, and the fortunes gained and lost — as the S&P e-minis alone trade 1.2 million contracts a day, a dollar volume of 85.5 billion .Take into consideration too that the hoariest adage is that the market in the first month of the year foretokens the rest, and multiply all these emotions a thousand fold for the poor public that follow such an idea.

Perhaps not so many would follow it if they were to look at the following:

Year Jan. Move Rest of Year Move

2006 32 138

2005 -31 67

2004 19 81

2003 -24 256

2002 -18 -250

2001 46 -217
This rule over the last six years has been wrong three times and right three times, and in totality would have lost you 70 points. This does not seem like the kind of rule to hang ones hat on. Needless to say, the only reason that the January barometer has cachet, aside from the thing that statisticians call multiple comparisons, is that in most years, January is up, and the rest of the year is up. For example, from 1980 to 1999 , the last 11 months of the year were down just three times, and January was down only five times, so any rule that most often predicts a rise is going to appear right.

It is much easier to describe than predict, so what does all this mean? We have had three down days in a row now going into the first day of the year. Down first days, this occurred as follows (while futures have been open).

Year First Day Rest of Month

2005 -7.4 -29

2004 -1.7 21

2001 -35 83

2000 -17 -96

1999 -4.6 37

1994 -1 13

1993 -2 +2

1991 -3 09

1989 -3 19

1986 -1 -3

1985 -2 11

1983 -3 +3

12 of last 24 years started with down days, so the first day of the year is not inordinately bullish. The rest nebulous squared.

Thanks to Mr. Owen Wilson for his timely calculations.


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