January is over, my friends!
Statistically-speaking, 36% of the people who made New Year’s Resolutions a month ago (45% of Americans)… have already given them up.
But I heard Oprah’s lost 26 pounds and eaten bread every single day! So at least some of us are off to a good start in 2016!
Global stock markets, on the other hand, are having an awful start to the year.
By January’s end, the Dow was down 5.5%… and Chinese stocks were down 11.6%!
(Hat tip to Boom & Bust subscribers who’ve made money in those two markets… even as stock markets tumbled.)
No doubt, any investor who came into the year feeling confident and hopeful has had those warm-and-fuzzies slapped out of him by Mr. Market’s invisible (and merciless) hand.
And my research suggests that black cloud could very well linger for the next 11 months.
If “buy-and-hold” and the notion that you can’t beat the market have left you short of your personal and retirement goals, then you’re going to want to hear the truth about passive and active investing.
Chances are, if you’re more than 25 years old, you think it’s impossible to “beat the market!”
But today, there is MORE than ample evidence that proves:
- The stock market is NOT perfectly efficient
- Passive investing can be MORE risky than active investing
You CAN beat the market… you just need to use the right strategy!
History shows there’s a degree of predictability in annual returns, after judging how stocks fare in January.
When stocks are up in January… positive annual returns are both more likely to occur and tend to be stronger as well, on average.
Meanwhile, negative January returns don’t guarantee stocks will finish the year in the red. But the odds of a strong, bullish year are now much lower. And the risk of further losses is now greater.
Here’s a table that shows how annual returns have fared, after coming out of a January that’s returned negative 5% or lower (it’s only happened 11 times).
As you can see, the 5.5% loss that U.S. stocks suffered this January will go down in history books as the seventh-worst January ever.
And unfortunately, joining this “Top-10” club means bullish investors are statistically likely to face a stiff headwind this year. At the bottom of the table you’ll notice that annual returns have averaged negative 1.7% following Top-10 worst Januaries.
You should also take a look at this chart, which shows that negative January returns have a greater likelihood of becoming negative returns for the year, and vice versa.
All told… this is NOT the year to throw caution to the wind and pile into stocks.
Although, ironically, this isn’t a great time to turn uber-bearish, either.
During our Investment Committee conference call last week, the Dent Research team was in unanimous agreement that stocks are deeply oversold (in the short-term).
And my Kickstarter Signal, which I talked about last week, suggests that short-term buyers are in control… and could push stocks higher for the next several weeks, or even months.
So our long-term research is pointing to a weak stock market this year… and further price declines to come. But our short-term indicators are telling us to be positioned, or at least on-guard, for near-term strength in some stock sectors.
And this is where Dent Research’s suite of trading services come into play.
While our flagship newsletter, Boom & Bust, is geared toward long-term trends… our proven trading services are designed to position you in profitable short-term trends.
My Max Profit Alert, which I introduced last year, has a proven track record of firing off double and even triple-digit gains over a two to three-week period.
This morning, subscribers just closed a trade for a net return of about 75% in just seven trading days. And if my Kickstarter Signal is correct, the next several weeks or months could be a fun ride.
Click here to take a look at this exclusive research service.
Adam O’Dell, CMT
Chief Investment Strategist, Dent Research