In the wee hours of 2013’s first day, politicians set the tone for another year of dysfunctional governing.
But I’m not a political analyst. And while I always keep an ear tuned to the news chatter, I rely on statistical evidence in my assessment of the financial markets.
So, let’s see what tone has been set for the stock market in 2013. To do this, I’ll review two indicators you may be familiar with… and one you probably haven’t heard about before.
Let’s start with the January Barometer. This is the concept that the stock market’s performance in January is predictive of its performance through the rest of the year.
Basically, if stocks are up in January, they’ll probably be up for the year.
Out of 63 years studied, stocks have finished the year higher 83% of the time when gains are made in January. The average annual return in these years has been 9.44%, better than the average of all years studied.
January isn’t over yet, so it’s too early to make a call as to the stock market’s future in 2013 based on this study.
But an offshoot of this statistical analysis is the “First Five Days” rule. The theory is the same as the January Barometer, it’s just that only the first five days of January are considered.
The S&P500 gained 2.2% in the first five days of trading this year. Historically, when the market is up 2% or more in the first five days of January, stocks have averaged annual gains of 11.2%.
So by this study, 2013 has good odds of producing double-digit gains.
But there’s one more study I want to share with you. It’s one I developed myself, so I’m sure you haven’t heard of it yet. I call it the “NYE Fireworks” indicator.
It’s simple, and uses the same theory of the January Barometer. That is the “tone is set” for the entire year in early January.
I simply measure the percentage change of stock prices between the last day of the year (2012) and the first day of the New Year (2013). If stocks pop – like champagne corks and bottlerockets – it could be a very good year!
Over the past 13 years, I’ve seen two of these big pops.
In 2003, the S&P500 jumped 3.1% on January 2. This move sparked a strong annual performance, with the market up 24%. Take a look…
Then in 2009, stocks jumped 3% on January 2. Again, stocks finished the year strong with an impressive 26% gain.
So what about this year…
Despite a fiscal cliff “deal” that didn’t much look like a deal… stocks popped on January 2, gaining 2.6% in a day.
So I’ve gotta say… while there are a myriad of potential financial disasters facing the global economy in 2013 – something Harry and Rodney will talk more about in their annual forecast that will take place mid-month – statistical analysis suggests there will also be plenty of profitable opportunities in the market this year.
That’s why I’ve spent the past two weeks scouring the market for the very best plays. We’ll jump on these early, then watch with a cautious eye as the year progresses.
Regardless of the ups and downs we’ll see this year, I expect to find many profitable investment opportunities in 2013.
If you haven’t done so already read the Survive & Prosperissue on “Bush Tax Cuts to Debt Ceiling Debate.”