What January Performance Portends For The Stock Market In 2012

 |  Includes: AAPL, C, CVX, DIA, MSFT, QQQ, SPY
by: James A. Kostohryz

For people in rural agrarian areas of the Latin American region where I live, January is a very important month; it is considered a barometer for the rest of the year. You see, according to local folklore, by carefully observing, recording and analyzing the cloud patterns and precipitation during the month of January, one can forecast the weather and rainfall for the rest of the year. This meteorological tradition is called Las Cabañuelas.

In many areas, specialized knowledge of Las Cabañuelas carries great value as it literally can determine the difference between wealth and hunger in any given year. For example, large rainfall around the harvest time in the months of October and November can destroy corn crop but be a blessing for a rice crop - and vice-versa.

There are many variants of how the traditional folk wisdom of Las Cabañuelas is applied. The simplest version simply tallies the cloudiness and rainfall during the first twelve days of January, with the weather on each day foretelling the weather tendencies of the corresponding month (January through December) of the incoming year. A slightly more complex version averages in the results in days 1-12 with the results from days 13-24, but counting the latter set of days backwards from December to January. A more involved version factors in the 12 half days from January 25-30. And a more involved version still will carefully record any rainfall or cloudiness during the 24 hours of January 31, with each hour corresponding to each month counting forwards (Jan-Dec) and then backwards (Dec-Jan).

In Catholic countries, each day of the year has at least one patron saint associated with it. More sophisticated prognostications from the Las Cabañuelas tradition combine all of the above empirical observations regarding dates with beliefs regarding the days of various catholic saints.

And if you want to get even more accurate and precise predictions, you can consult various sorts of self-styled witch doctors that for a reasonable fee of a couple of free-range chickens or a kilo of fresh cheese will perform much more complex and presumably more accurate feats of numerological interpretation.

If you ask the local people (including the witch doctors) what the origins of such beliefs are, they have no idea. The history is actually interesting to contemplate.

Las Cabañuelas in the Americas (including New Mexico) has its most direct origins in Spain where Sephardic Jews practiced similar methods of meteorological prediction. During the Jewish Feast of Tabernacles (Cabañuelas means tabernacles in Spanish) Jewish wise men would employ various mysterious numerological techniques to provide forecasts to local Spanish farmers (sometimes for a fee of agrarian products).

These Sephardic meteorological numerologists were hardly pioneers. They were working in a very ancient tradition with recorded roots and/or analogs in ancient Babylon and Egypt.

For many readers, the iterative search/addition of layers of interpretative complexity to chart/calendar reading may possibly remind you of the basis for a certain branch of the finance profession. Such an inference is yours alone. Please don't go telling anybody that I would suggest that any such association exists.

Which brings us back to the initial topic of this article: What does the strong performance in the month of January portend for the rest of 2012? Readers are free to google the matter as there are dozens of articles that have been published on the subject of the so-called "January Barometer." The upshot is that January performance portends absolutely nothing. In fact, if one were so inclined to trust such statistical inferences, the month of April is far more auspicious. I prefaced the preceding sentence with "if one were so inclined", because even if the data were more favorable, it would mean very little since the sample size is far too small to be of any serious significance from a statistical point of view.

Yet, many people either explicitly or intuitively believe that a strong January augurs a good year ahead for the stock market. And that will probably remain the case forever, no matter what the data show, nor how many times experts in statistics publicly decry the practice.


What does January portend for the market? The fact you are reading this article in search of an answer to that question is far more interesting to contemplate than the question itself.

I think that the most important piece of knowledge that we can derive from an analysis of the tradition that claims that January foreshadows the rest of the year is that stock market prices are formed from an unruly cauldron of fact, falsehoods, ignorance, knowledge, myth, hunches, beliefs and doubts. Some notions and impulses that drive behavior and impact prices are so bizarre that if their true impact were confessed, one might be forced to blush.

Are you making your decision on whether to plant corn this year rather than rice (in August) in due to the rainfall on the 10th, and 15th of January and on the 29th in the afternoon (corresponding to the month of October)? Are you buying equities such as Apple (NASDAQ:AAPL), Microsoft (NASDAQ:MSFT), Citigroup (NYSE:C) and Chevron (NYSE:CVX) as and/or ETFs such as (NYSEARCA:SPY), (NYSEARCA:DIA) and (NASDAQ:QQQ), because of how the stock market did in January? Wait! Please don't risk your money just yet on such an elementary inference.

You need more specialized knowledge than that. For less than the price of a stock commission (a couple of free range chickens), you can subscribe to the services of a diviner of Las Cabañuelas that can give you a far more comprehensive appraisal of the meaning of this January's performance. And don't feel ashamed. In subscribing to such a service, or others of that persuasion, you will be partaking of a very ancient tradition; one that thrives on an impulse that is very deep rooted in our humanity.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.