What about the January Indicators?

It’s that time of year when Wall Street prognosticators dust off their crystal balls and try to figure out where stocks will go for the year. One tool is the January indicator - actually two January indicators. There’s the one that looks at the results in the first week of active trading and another that looks at the results for the entire month. Both extrapolate good results in those periods to a favorable outlook for the market for the entire year. This year, so far, the forecasts are looking good, as stocks posted a 2.67% increase in the first five trading days of 2010.

But how reliable are those signs? Mark Hulbert, a veteran Wall Street analyst, says there’s some evidence that the market does better in years when first-week results are positive, but the numbers aren’t statistically significant. The numbers work out somewhat better for the whole month of January. Since 1896, when January results are positive, the market has gone up for the year 70% of the time. It has gone up only half the time when results are negative.

What about the Super Bowl effect? This indicator’s almost spotless record has become somewhat tarnished in recent years. The indicator, which says that if the NFC team or a team that started life in the old NFL wins the Super Bowl, the market will be up for the year, hit bottom last year. With the Pittsburgh Steelers meeting the Arizona Cardinals in the big game, the Super Bowl signal should have flashed green no matter which team won. Instead, the stock market laid an egg in 2009, which was one of the worst years in market history.