Saturday, February 1, 2014

A Negative January Barometer:

Just to review – once again, The January Effect is the bullish tendency of the smaller companies (the Russell 2000) to out perform the large companies (the Dow or the S&P500) during the month of January. The “as January goes – so goes the year” thing is actually the January Barometer which relies on the market direction during the first trading week of January – and then the entire month of January.

These are seasonal signals found in the Stock Trader’s Almanac which was first published in 1972 by Yale Hirsch. The Almanac is an annual publication which I acquire once every ten years – because seasonal books tend say the same thing they did the year before. How many ways can you say “sell-in-May and go-away”?

This year we got a negative January Barometer which according to the 2010 Almanac has had “only five significant errors in 59 tears.” Just to review the last few years – the 2008 barometer was negative, the 2009 and 2010 were negative and the 2011-2012-2013 barometers were positive. The 2014 January Effect in the US was flat to weak.

Seasonality aside – I would be more concerned about to-day’s chart which displays the SPDR KBW Regional Banking ETF (KRE). Note the cycle magnitude failure at (A) and the swing failure of the relative perform at (B) – not a good omen. The KBW leads as it did back in early 2007 when it broke down below the 200 day moving average.

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