While the futures look grim this morning our January
Indicator Trifecta remains positive. If the market can exhibit some resilience
in the face of all the transition and upheaval being thrown at it and hang on
to the gains in January, it will be a good sign for the year.
Covid-19 continues to grip the planet and the market while the
vaccine rollout has hit some roadblocks. Wall Street is also recalibrating to a
completely different President and administration with a newly democratically controlled
Congress and another impeachment. Throw in some disappointing earnings and
lingering economic concerns and stocks are on the ropes this morning.
Claus Rally (SCR) kicked off the month with a bang then our January
Trifecta went two for two when the First Five Day (FFD) early warning system came
in positive. The January Trifecta would be satisfied with a positive reading
from our January Barometer (JB) at month’s end. The best case, most bullish
scenario is when all three indicators, SCR, FFD and JB, are positive (in table
In 31 previous Trifecta occurrences since 1950, S&P 500
advanced 87.1% of the time during the subsequent eleven months and 90.3% of the
time for the full year. However, a January Indicator Trifecta does not
guarantee the year will be bear or correction free. Of the four losing “Last 11
Mon” years, shaded in grey in the above table, 1966, 1987 and 2011 experienced
short duration bear markets (2011, S&P 500 –19.4% peak to trough). In 2018,
S&P 500 retreated 19.8% from its September high close to its December low
Even if S&P 500 was to finish the full month in the red,
the prospects for the next eleven months and the full year remain decent. Of
the last 11 times since 1950 (last year, 2020 is the most recent) that the SCR
and FFD were both positive (and the full-month January was negative), the next
eleven months advanced 81.8% of the time and full year advanced 72.7% of the
time with gains of 8.2% and 4.1% respectively.
Positive SCR and FFD are encouraging, and further clarity
will be gained when the January Barometer (page 16, Stock
Trader’s Almanac 2021) reports at month’s end. A positive January
Barometer would certainly boost prospects for full-year 2021. The December Low
Indicator (2021 STA, page 34) should also be watched with the line in the sand
at the Dow’s December Closing Low of 29823.92 on 12/1/20.