Solid across the board gains this year have put another January Trifecta Jackpot in our sights for 2020.
So far our January Trifecta is two for two. Our First Five Day (FFD) early warning system came in positive up 0.7% on January 8 following up on a positive reading for our Santa Claus Rally (SCR) on January 3. The January Trifecta would be satisfied with a positive reading from our January Barometer (JB) at month’s end.
We just published an update on The Incredible January Barometer: Only 11 Major Errors in 82 Years that runs through the reasons behind the efficacy of the January. We discuss how the passage of the Twentieth “Lame Duck” Amendment to the Constitution in 1933 created the January Barometer. We also compare the January Barometer results along with the full year results, the following eleven months results, and the subsequent twelve months results to all other “Monthly Barometers” using the Dow Jones Industrials, the S&P 500(NYSEARCA:SPY) and the NASDAQ (NYSEARCA:QQQ)Composite
The best case, most bullish scenario is when all three indicators, SCR, FFD and JB, are positive (in table below). 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, in the 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 close.
Even if S&P 500 was to suddenly reverse course and finish the full month in the red, the prospects for the next eleven months and the full year remain decent. Of the last 10 times since 1950 that the SCR and FFD were both positive (and the full-month January was negative), the next eleven months advanced 80% of the time and full year advanced 70% of the time with gains of 7.4% and 2.9% respectively.
A positive SCR and FFD are encouraging and further clarity will be gained when the January Barometer (page 16, 2020 Stock Trader’s Almanac) reports at month’s end. A positive January Barometer would certainly boost prospects for full-year 2020. The December Low Indicator (2020 STA, page 34) should also be watched with the line in the sand at the Dow’s December Closing Low of 27502.81 on 12/3/19.