jgonion

How Accurate Is the January Barometer?

January Myth Debunked:

Take a good hard look at the numbers presented in this piece. It is true that the January return correlated with the rest of the year 72.5% of the time 50/69 years (0% return in 1986 has no direction).

I propose another predictor of the market. It will always go up. Looking at the numbers above you will notice that this simple predictor is also correct 50/69 years (72.5% of the time).

From this, it should be clear that a positive return in January has zero predictive value.

Now, let's look at negative returns in January. These correctly predict the direction of the market 52% (13/25 down Januaries) of the time. I can't help but notice that flipping the Nickel in my pocket will achieve a similar prediction rate.

So, let's recap: A positive return in January tells you nothing, and a negative return in January tells you nothing.

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