Well, there are still a few more days left to January for our official reading on the January Barometer to turn positive, but at this juncture it does not look promising – today’s tepid rebound notwithstanding. A confluence of indications has our radar purring louder. With just over an hour left in the trading day the S&P 500 will need to rally 3.15% or 56.47 points by the close on Friday January 31 to end the month in the black and keep Ye Olde JB positive for 2014. While not a herculean feat by any stretch of the imagination, it does seem quite a bit more daunting today than it would have a week ago.
Let’s review the score card shall we. 2014 is a midterm year following a big gain the previous year. Nine of the last 14 bear markets since 1961 have bottomed in the midterm year, midterm years are weaker following gains in the post-election years and the market has been worse in midterm years under Democratic administrations. We are also coming off 5 straight years of gains for the Dow (the S&P was down a hair in 2011) and that is a tough act to follow. And we have not had a 5% correction on a closing basis since last June or a 10% correction since 2011.
Monday’s decline marked the second Down Friday/Down Monday for the DJIA of the year. Since 2000, DJIA has registered 150 DF/DM occurrences, in all but three occasions; DJIA was lower sometime in the next 90 calendar days. Declines have begun immediately in some cases and later in others. Fourteen have occurred in Januarys since 2000. Only January 2004, 2010 and 2013 did not have a DF/DM occurrence. The average decline was 7.3% within an average of 45 calendar days. Double digit declines happened in 2000, 2001, 2003 and 2009.
Last year we highlighted the good omen of the January Indicator Trifecta (http://www.stocktradersalmanac.com/sta/alertDisplay.do?alertId=1630). This year we are not so lucky. While the Santa Claus Rally did register a gain, the first five days did not and the full-month January Barometer (the Big Dog) is firmly in the red. The record of down Januarys is the only seasonal Almanac indicator with a perfect record – perfectly ominous that is: Every down January since 1950 without exception has been followed by a new or continuing bear market, a 10% correction or a flat year (+/- 5%). And down Januarys were followed by substantial average declines of -13.9% on the S&P 500. So you can see why the next 3 days are important to us.