Solid across the board gains today lifted S&P 500 to a year-to-date gain of 2.7% at today’s close and thus our First Five Day (FFD) early warning system is also positive.
Combined with last week’s positive Santa Claus Rally (SCR), our January Trifecta is now two for two. 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 above). In 30 previous Trifecta occurrences since 1950, S&P 500(NYSEARCA:SPY) advanced 86.7% of the time during the subsequent eleven months and 90.0% 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 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 fair. Of the last 10 years 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.