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Why You Should Be Wary of the "January Indicator"

Investors are offered "a rationale for optimism"

by Bob Stokes
Updated: February 05, 2019

Recently in these pages, we discussed the stock market's seasonal tendencies, encapsulated in such phrases as "Sell in May and go away" and "Santa Claus rally."

We noted they are called "tendencies" for a reason. In other words, yes, pay attention to them, but also look at other indicators before making a market judgment.

For example, let's do a quick review of December. Our analysts are well aware of the stock market's tendency to rise at the end of the year.

But, the market's Elliott wave pattern suggested just the opposite.Here's what our Dec. 7, 2018 U.S. Short Term Update said:

Clear wave structures keep the bearish case intact and make the forecast straight-forward.

As you'll recall, the stock market had its worst December since 1931. So much for the "Santa Claus rally."

Relatedly, there are also what you might call statistical indicators, like the Presidential Cycle and the Super Bowl Indicator.

With that in mind, the financial press is talking about the meaning of the stock market's January rally (CNBC, Jan. 31):

History shows that the market follows January's direction most of the time, so with the best January in three decades, 2019 should be a good year for stocks.

Of course, it'll be a "wait and see" on how the stock market performs in 2019.

But, as that CNBC article also notes:

The indicator also signaled a positive year last year, and the market suffered an unusual late-year sell off, wiping out all of the gains.

Moreover, our January Elliott Wave Theorist provides these insights:

The January indicator is simply the observation that since 1942 the Dow has closed up for the year 43 out of the 53 times that the Dow has risen over the first five trading days of January.... One reason the January indicator "works" as formulated is that most years since 1942 have been up.

The January indicator failed in 1966, 1973 and 1974, three of the four down years within [a] bear market... under the Elliott wave model.

We note only that in some years--now including 2019--it offers investors a rationale for optimism.

That's why, instead of leaning on mainstream signals like the "January indicator," we look for a different set of correlations -- ones you rarely hear about in the news.

For example, our new, February Financial Forecast shows you a chart of how the stock market behaved in a specific year five decades ago -- and it has an eerie similarity to what's going on today!

You should read what our analysts have to say, and you can do so without any obligation for 30 days. Look below to get the details.

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