Pay Attention, Things Are Beginning To Get Interesting
Submitted by Lance Roberts via RealInvestmentAdvice.com,
There is an abundance of “Wall Street Axioms” surrounding the first month of the New Year as investors anxiously try and predict what is in store for the next twelve months. You are likely familiar with many of them from the “Superbowl Indicator” to “What Happens In The First 5-days Predicts The Month.”
Considering that trying to predict the markets more than just a few days in advance is mostly an exercise in “folly,” it is nonetheless a traditional ritual as the old year passes into the new. As Wall Street espouses their always overly optimistic projections of year-end returns, as discussed in this past weekend’s newsletter, reality has tended to be rather different.
However, from an investment management perspective, we can take a look at some of the statistical evidence for the month of January to gain some insight into performance tendencies looking ahead. From this analysis, we can potentially gain some respect for the risks that might lay ahead.
According to StockTrader’s Almanac, the direction of January’s trading (gain/loss for the month) has predicted the course of the rest of the year 75% of the time.
Furthermore, twelve or the last sixteen presidential election years followed January’s direction. Every down January on the S&P 500 since 1950, without exception, preceded a new or extended bear market, flat market or a 10% correction.
Starting from a broad historical perspective, the chart below shows the January performance going back to 1900.
I have boxed in when the month of January posted consecutive negative returns. You will note that most of those consecutive negative returns coincided with bear markets such as 2002-2003 and 2008-2009. With January 2015 posting a negative return, along with the market’s weak performance, a negative return for 2016 may be a more ominous warning.
The table and chart below show the statistics by month for the S&P 500.
The good news is the month of January has the highest average and median return of all months of the year. It also boasts the highest number of positive return months followed by December and April.
Furthermore, while January’s maximum positive return was just 9.2%, the maximum drawdown for the month was the lowest for all months at -6.79%.
While I don’t directly make asset allocation decisions based on monthly returns from a portfolio management perspective, the statistical weight of evidence suggests a couple of things worth considering.
The odds of January being a positive month greatly outweigh those of it being negative. Therefore, allocations should remain weighted more heavily towards risk currently.
However, given the length of the current bull market run from 2009 to present, the risks are mounting that January will likely have consecutive negative performance years which would confirm the ongoing market topping process I discussed previously. Such an outcome would suggest a more conservative approach to investment allocations.
This dichotomy reminds me of the scene from “The Princess Bride” where the “Sicilian” is in a “Battle Of Wits” with “The Dread Pirate Roberts.”
While it may seem confusing, for investors it comes down to time frames.
For short-term traders, the odds are high that January will post a positive trading month, therefore, allocations should remain tilted towards equity related exposure. If you are a nimble trader and can adjust for the swings in the market, the “odds are in your favor.”
However, for longer-term investors, particularly those that are nearing retirement, risks are mounting to the downside. Such potential outcomes suggest a more cautious approach to equity allocations in portfolios.
While the majority of the financial media and blogosphere suggest that investors should only “buy and hold” for the long-term, the reality of capital destruction during major market declines is a far more pernicious issue.
As I stated this past weekend:
“It is ALWAYS okay to miss out on an opportunity, as opportunities come along as often as a taxi-cab in New York City. However, it is IMPOSSIBLE to make up losses as you can never regain the time lost getting back to even.
It only took six years for the markets to get back to where they were prior to the financial crisis. It took just about as long to get back to even following the “Dot.com” crash in 2000.
Ladies and gentlemen – getting back to ‘even’ is NOT an investment strategy. It is a game that has been played out since the turn of the century and investors have lost out on time and inflation.
The problem for investors is 15 years to grow and compound your money for retirement is GONE. You can never regain that time. While the financial press is full of hope, optimism and advice that staying fully invested is the only way to win the long-term investing game; the reality is that most won’t live long enough to see that play out.”
With market valuations elevated, leverage high, economic weakness pervasive and profit margins deteriorating, investors should be watching the month of January carefully for clues. The weight of evidence suggests that despite ongoing “bullish calls” for the markets in the year ahead, this could be a year of disappointment.
Pay attention, things are beginning to get interesting.
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3:30 right on F****** schedule
I knew it would happen.
So, let's see...
Everybody agrees that 2000 was a bubble.
Everybody agrees that 2008 was a bubble.
What does that make 2015?:
http://www.fedprimerate.com/s-and-p-500-history-chart.gif
Whocouldanode???
2015 - when we reached almost full employment and the economy recovered enough to raise rates.
damn its good to be alive. Lets get even richer than we did last year!
Every down January on the S&P 500 since 1950, without exception, preceded a new or extended bear market, flat market or a 10% correction.
When it's 5 Januaries overdue, one of these Januaries it's bound to be negative(though it looks like the PPT isn't taking any time off this new year)
Today was all about reseting for the new year, sending a strong message and blowing out some stops (and weak hands)...
Stop pretending there is any kind of market for true price discovery, there isn't.
Welcome back your Fuedal Lords. Barring a real world war, North America will look no different than South America soon enough, this is just math and the laws of Nature and physics at work. Of course the "official" meme will be that "everything is awesome". Anytime something blows up, it will be due to some white terrorist who will be promptly captured, killed, and then "buried at sea" in "accordance with their religious beliefs"...
Kabuki, the best continuous show still running...
3:30 ramp has it up 120 points in 17 minutes
BTFDers kick ass
January 1932.
Just sayin' bitchez...
I'm under the kitchen table shaking like a goddamn leaf.
Thank God for Zero Hedge!
Just poor desk jockeys looking for VWAP so they can get out of the institutional positions they're being forced to buy at VWAP from clients.
Or maybe not. Seems to be more buy volume than sell volume at VWAP.
Yes, the 11:00AM algorithm was refired up right on schedule...probably a negligible 1.5% loss today...nothing to even bother talking about....nice job GS, JPM etc. Fed workhorses..
selling opportunity
Don't worry. Another day like today and the margin clerks will get busy. I don't expect too much of a bounce. After all all those "big" hedge funds that are closing shop will be selling into this mess. If I was a suspicious man I wonder if the "boyz" are letting the market fall so they don't have to pay too much for inventory they know they have to buy.
I was waiting for it, and like my 0930 crap, there it was.
can't let s&p close <2k - that would be "hate speech"...
I almost traded it because of how predictable it is but chickened out. Long anything this market is like putting a stick in my own eye.
It's a huge conspiracy, isn't it?
When are the pundits NOT 99% bullish?
Never.
It's like a repetitive folk song meter, but without the soul.
There was a poor thing that flowed in with the tide
It was forty feet long, boys, and forty feet wide
And we called it the herring that came it with the tide
Take him away and don't delay
One your leg, two your leg, three your leg,
Throw your leg, over me Johnny sez she
Well what do you think we made out of his head, but the grandest oul oven that ever baked bread
With me herrings and heads and oven baked breads
Take him away and don't delay
One your leg, two your leg, three your leg,
Throw your leg, over me Johnny sez she
Well what do you think we made out of his eyes, but lovely big pair of blue butterflies
With me herrings and heads and oven baked breads, herrings and eyes and blue butterflies
Take him away and don't delay
One your leg, two your leg, three your leg,
Throw your leg, over me Johnny sez she
Well what do you think we made out of his back, but lovely big sailor and we called him Jack
With me herrings and heads and oven baked breads, herrings and eyes and blue butterflies
Herrings and backs and sailors called Jack
Take him away and don't delay
One your leg, two your leg, three your leg,
Throw your leg, over me Johnny sez she
Well what do you think we made out of his belly, but lovely looking girl and we christened her Nellie
With me herrings and heads and oven baked breads, herrings and eyes and blue butterflies
Herrings and backs and sailors called Jack, herrings and bellies and girls called Nellies
Take him away and don't delay
One your leg, two your leg, three your leg,
Throw your leg, over me Johnny sez she
Well what do you think we made out of his fins, but a grand big box of needles and pins
With me herrings and heads and oven baked breads, herrings and eyes and blue butterflies
Herrings and backs and sailors called Jack, herrings and bellies and girls called Nellie
Herrings and fins and needles and pins
Take him away and don't delay
One your leg, two your leg, three your leg,
Throw your leg, over me Johnny sez she
Well what do you think we made out of his tails, but the grandest oul ship boys that ever set sail
With me herrings and heads and oven baked breads, herrings and eyes and blue butterflies
Herrings and backs and sailors called Jack, herrings and bellies and girls called Nellie
Herrings and fins and needles and pins, herrings and tails and ships setting sail
Take him away and don't delay
One your leg, two your leg, three your leg,
Throw your leg, over me Johnny sez she
Well, come all you young girls that are tryin' to prude
The next two verses are awfully rude
So, if you don't like them you can be on your way
Take him away and don't delay
One your leg, two your leg, three your leg,
Throw your leg, over me Johnny sez she
Tim Cook needs to make a U2 song available on his iTunes download. The free U2 download was a flop.
Fuck you snuggles! U2's lost song
Thanks for down vote. It had to do with Island Records.
http://www.islandrecords.co.uk/island-artists/u2/
btfd is still in play. ain't nobody selling jack shit. all that's left are a few gun shy skittish skid marked pants around their ankles chronic diarrhea sore-assed bearshitters. Quick, to the FAZmobile! lulz
Options romper room buzzsaw. Still money to be made.
yeah there's money to be made on the vol but still more bears get killed in a bear market than bull sometimes
Look up Robert Himler and Amy Sangster. There is a easy options portfolio you can use. I cannot share info.
Amy pulled herself off with Binary Options Trading.
http://amysangster.com/
She is a black widow cunt that needs to get death sentence or executed. Watch 2012 video. Robert has past away.
https://www.youtube.com/watch?v=S2pGfxrMO8o
Another tier resides above. No comment.
RULE 1 IN BUSINESS!!
JANUARY SETS THE TONE FOR THE REST OF THE YEAR!!
And that doesn't just count when it's up.
And the reason why January sets the tone is because all the new budgets are released.
Depends on how the corporation defines the new fiscal year. January is not universal.
+1 - january is in the minority
When the Houses of Saul control both the sellers and the buyers along with the Fed intervening in FX and Treasury markets, there really isn't anything that mirrors reality. Good news is you will probably never see another 1987 event again. 2016 will be like 2015, some ups and downs but nobody in control of this bus is going to allow a 10% loss as that affects both confidence and bonuses...
Everything is still under control. Else, we wouldn't have seen 3:30 Ramp Capital ride in on its white horse and rescue the equity indices from falling over the cliff.
BTFD still holds as we are OTL. (Off the lows, of course).
Market will be up 300 tomorrow. They will never let this market go down
They need to close China green tonight. Our PPT started at 3:30 and will hand it over to China and Europe. It's all Bullshit!!!
first it goes up
then it goes down, really down
oops up again, no down yes really down
it’s up, way up...(a whole year goes bye-bye)...
and!
rinse wash repeat, etc. etc. etc.
The way it has been going is that it will be flat tomorrow and then 300 up on Wednesday.
I hated watching that predictable 330 horseshit. From down 450+ to only down 275? WHAT THE HELL IS GOING ON????
Sorry, but anyone advising short-term traders and long-term investors in the same post really has nothing much to say. Especially when linking the thought process to 100 years of data, of which nearly all is irrelevant because nearly all of it did not transpire in the prevailing ZIRP/QE environment.
Back to my scotch.
Dow futures now up 250+ points as this shit continues
One can learn from past events. But one can NOT accurately predict the future from past events.
Anyone who says other wise is a FOOL or a CROOK !!!
The Fed and Treasury will intervene to keep the markets high for as long as they are capable of doing so!
Remember, it's an ELECTION year!!!