Date: January 13, 2016

January Early Warning for Rest of Year

We now know that the first five days of the year were down which became a popular indicator for the year as a whole by Yale Hirsch of Stock Traders Almanac fame. While waiting for the month of January to conclude, I went back and looked at the first five days of every down year since 1951. Then I looked to see if January as a whole was down. Finally, I found all the times where January’s weakness exceeded the prior year’s December low as well as when the entire first quarter’s low was below the prior year’s December low.

The idea behind the research was to see which triggers were common in poor years for the stock market, not necessarily the accuracy in all years.

Listed below are all down years for the S&P 500 since 1951. Here is the key for the abbreviations used.

5 – First five days of the year were down

Jan – January as a whole was down

Dec – January’s weakness undercut the lowest closing price of December

Q – The low of the first quarter exceeded the low of prior fourth quarter’s low

2016 (so far) – 5, Dec

2015 – Jan

2008 – 5, Jan, Dec, Q

2002 – Jan, Dec, Q

2001 – 5, Q

2000 – 5 , Jan, Q

1994 – Q

1990 – Jan, Dec, Q

1981 – 5, Jan, Q

1977 – 5, Jan, Dec, Q

1974 – 5, Jan, Q

1973 – Jan, Q

1969 – 5, Jan, Q

1966 – Jan

1962 – 5, Jan

1960 – 5, Jan

1957 – 5, Jan

1953 – 5, Jan

As you can see, almost every single down year in the S&P 500 saw January as a down month. 1994 and 2001 were the exceptions. That’s pretty remarkable. Of course, that’s not saying that just because January is down the whole year will be down. It just puts us on guard to look for other indicators.

What we also see is that for the more significantly down years, not only is January down, but the low of January and/or the low of the first quarter exceeds the low of the prior December.

2016 has gotten off to the worst five day start in history, but it’s still way too early to say it’s a harbinger of things to come.

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Paul Schatz, President, Heritage Capital