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Mark Hulbert Archives | Email alerts
Jan. 11, 2012, 12:01 a.m. EST
By Mark Hulbert, MarketWatch
CHAPEL HILL, N.C. (MarketWatch) "” Here's another old wives' tale to ignore "” or maybe I should say, another old brokers' tale ...
This is the one that says we can divine the stock market's direction for the full year by how it does during the first five trading days of January.
/quotes/zigman/627449 DJIA 12,462.47, +69.78, +0.56%
This so-called "first five days of January" indicator gets lots of attention every year around this time. It's the bulls who are trumpeting it this year, since the market was nicely ahead for the year as of Monday's close "” with the S&P 500 index /quotes/zigman/3870025 SPX +0.89% up 1.8%, and the Dow Jones Industrial Average /quotes/zigman/627449 DJIA +0.56% up 1.4%.
If only it were that easy ...
Consider the results of this indicator when applied to the Dow back to its creation in the late 1800s.
When the Dow over the first five trading sessions of the year... % of time Dow GAINED thereafter through the end of the year % of time Dow DECLINED thereafter through the end of the year Rose 69% 31% Fell 58% 42% All years regardless 65% 35%Notice that, regardless of what happens over the first five days of January, history suggests that there is a 65% chance that the market will rise through year end. These odds improve only slightly once the market has risen over those first five trading days, and decline only slightly if the market falls "” by 4 and 7 percentage points, respectively.
Not a lot to write home about, is there?
Click to Play $(function () { $("#video_2A38B60F-74FC-4BEC-89E2-51390F2E80CC").click(function (e) { e.preventDefault(); MarketWatch.Video.loadAndStartVideo('2A38B60F-74FC-4BEC-89E2-51390F2E80CC', 'video_2A38B60F-74FC-4BEC-89E2-51390F2E80CC', '287', '162'); }); }); Don't bank on early-January effectA common belief about stock-market patterns is that the first five days of January will point the way for the rest of the year. If only it were that simple, says MarketWatch columnist Mark Hulbert. Laura Mandaro reports. (Photo: Getty Images)
In fact, given volatility in the historical data, these differences are not statistically significant at the 95% confidence level that statisticians often use to determine if a pattern is more than a fluke.
If this is not enough to dissuade you from paying much heed to this indicator, consider this: Over the last four decades, the pattern has been just the reverse of what it was previously. Since 1970, in fact, the odds of an "up" year were even higher following a down Dow over the first five days of January than following a rising Dow.
Or consider what I found upon analyzing the predictive powers of the first five trading days of every month "” not just January's. I found that, at least for the Dow since the late 1800s, the first five days of April and May have stronger predictive powers than those of January.
In other words, if those who attribute special clairvoyance to the first five days of January were truly interested in objectively following the lead of the data, then they would be paying even more attention to a "First Five Days of April" or a "First Five Days of May" indicator.
I'm not holding my breath.
Let me stress that the results presented here do not mean that the stock market won't rise this year. The stock market may very well rise. But if it does, it will have nothing to do with its year-to-date gain through Monday's close.
Click here to learn more about the Hulbert Financial Digest.
/quotes/zigman/3870025 Add SPX to portfolio SPX S&P 500 Index 1,292.08 +11.38 +0.89% Volume: 653.26M Jan. 10, 2012 4:31p var embeddedchart124732823Chart = new EmbeddedChart('#embeddedchart124732823', NormalChartStyleNoDecimals, 240, 80, '1dy', '5mi', null, null, null, 'US:SPX'); jQuery.data($('#embeddedchart124732823').get(0), 'embeddedchart', embeddedchart124732823Chart); /quotes/zigman/627449 Add DJIA to portfolio DJIA Dow Jones Industrial Average 12,462.47 +69.78 +0.56% Volume: 141.23M Jan. 10, 2012 4:30p var embeddedchart70394702Chart = new EmbeddedChart('#embeddedchart70394702', NormalChartStyleNoDecimals, 240, 80, '1dy', '5mi', null, null, null, 'US:DJIA'); jQuery.data($('#embeddedchart70394702').get(0), 'embeddedchart', embeddedchart70394702Chart); //$(document).ready(function() { var storywidth = $('#mainstory').width(); var maxwidth = storywidth; $('#maincontent pre').each(function (index, value) { var thiswidth = $(value).width(); if (thiswidth > maxwidth) maxwidth = thiswidth; }); var offset = maxwidth - storywidth; if (offset > 0) { var margin = 13; var blanketwidth = $('#blanket').width(); var contentwidth = $('#maincontent').width(); $('#blanket').width(blanketwidth + offset + margin); $('#maincontent').width(contentwidth + offset + margin); $('#mainstory').width(storywidth + offset + margin); } //});Mark Hulbert is the founder of Hulbert Financial Digest in Annandale, Va. He has been tracking the advice of more than 160 financial newsletters since 1980.
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About Mark Hulbert RSS News feedMark Hulbert is editor of the Hulbert Financial Digest, which since 1980 has been tracking the performance of hundreds of investment advisors. The HFD... Expand
Mark Hulbert is editor of the Hulbert Financial Digest, which since 1980 has been tracking the performance of hundreds of investment advisors. The HFD became a service of MarketWatch in April 2002. In addition to being a Senior Columnist for MarketWatch, Hulbert writes a monthly column for Barron's.com and a column on investment strategies for the Journal of the American Association of Individual Investors. A frequent guest on television and radio shows, you may have seen Hulbert on CNBC, Wall Street Week, or ABC's World News This Morning. Most recently, Dow Jones and MarketWatch launched a new weekly newsletter based on Hulbert's research, entitled Hulbert on Markets: What's Working Now. Collapse
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Loading more headlines... dow /quotes/zigman/627449 12,462.47 +69.78 +0.56% nasdaq /quotes/zigman/123127 2,702.50 +25.94 +0.97% s&p 500 /quotes/zigman/3870025 1,292.08 +11.38 +0.89% Kiosk 1326240300000 1326327000000The Trading Deck
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