Comment 79: More about the "January Barometer" (November 30, 2010)

"January Barometer" is a folklore on Wall Street claiming that the stock market will be up in a year if the market is up in the January of the year, and vice versa. The January Barometer has been studied in detail in Comment 65 based on Dow Jones Industrial Average (DJIA). Adding the performance of 2009 that was not available at the time of the writing of Comment 65, there were 64 successes and 17 failures during the 81 years from 1929 to the end of 2009. The majority of the failure of the barometer were due to major market reversals during the remainder of the years that the January trends had failed to anticipate. Those major reversals were either from the onset of recessions or from the sharp market rallies from the nadir of recessions as discussed in Comment 64. It becomes clear that the January Barometers can not anticipate those major market reversals. In this comment we will ask the following question: For those years that there were no major market reversals, we want to know whether the successes of the barometer are indicating a special magic of January or not.

We have looked at the success rate of barometers based on other months. For example, a February Barometer is to look at the correlation of the performance of DJIA in any February to the stock market performance of the following 12 months. The results, including the success rate of January Barometer are tabulated below. From the table we can see clearly that January does retain special allure as long as there is no major market reversal during the year.

The success rate of each month served as the base of the barometer
Barometer Month Success rate in %
January 79
February 63
March 63
April 57
May 62
June 59
July 64
August 61
September 52
October 56
November 65
December 62