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Yale Hirsch’s Santa Claus Rally & January Barometer, Trifecta 2 out of 3 Ain’t Bad


My father Yale Hirsch invented both of these well-known seasonal indicators in 1972 and published them in the 1973 Stock Trader’s Almanacas you can see in the picture above on pages 11 and 111. He passed away late last year at the ripe old age of 98. Not only was he the illustrious founder of the Stock Trader’s Almanac, but he left me and everybody on the planet a rich legacy of seasonal patterns, strategies and indicators. Many of which he discovered, invented or devised. He also brought others to light with clarity and always full credit of course. And most importantly, from the first Almanacin 1968 Yale taught us all how to think differently about the markets and recurring market patterns. Thanks to him we have a plethora of tools in our analytical and statistical arsenal.

To quote the great Sir Isaac Newton, “If I have seen further, it is by standing upon the shoulders of giants.” We proudly stood on Yale’s giant shoulders when we created our “January Indicator Trifecta” back in January 2013. Which brings us to the present.

Combining our three January indicators, the Santa Claus Rally (SCR), First Five Days (FFD) and January Barometer (JB), into the “January Trifecta” has proven to be an especially reliable gauge for future market performance. When all three are positive, as was the case in 2019, the next eleven months have been up 87.1% of the time with an average gain of 12.3% and the full year advanced 90.3% of the time with an average S&P 500 gain of 17.5%. The worst full-year decline in a year with a positive January Trifecta was 13.1% by S&P 500 in 1966.

With less than two hours left in the First Five Days, S&P 500 will need to gain more than 70.13 points (1.49%) by the close to keep the bullish January Indicator Trifecta alive in 2022. Since the odds of that happening are slim at this juncture that leaves three possible scenarios for our “January Indicator Trifecta:” SCR up and both FFD and JB down (8 occurrences since 1950 with last 11 months up 2/down 6, average -5.8%, full year up 1/down 7 average -9.4%); SCR up, FFD up and JB down (12 occurrences since 1950 with last 11 months up 10/down 2, average 9.9%, full year up 9/down 3 average 6.0%); or SCR up, FFD down and JB up (6 occurrences since 1950 with last 11 months up 5/down 1, average 9.7%, full year up 5/down 1 average 11.8%). So, two out of three ain’t bad. (See the tables below.)

Wednesday’s market decline was triggered by a much more hawkish Fed perception following the release of last month’s FOMC Meeting minutes. A more aggressive removal of Fed liquidity could aid in pulling back inflation and it could pressure stocks as bond yields rise. We will withhold final judgement until the final results of the January Barometer arrive. Our base case scenario from our 2022 Annual Forecast is still our pick at this juncture.

As the opening of the New Year, January is host to many important events, indicators and recurring market patterns. U.S. Presidents are inaugurated and usually present State of the Union Addresses. New Congresses convene. Financial analysts release annual forecasts. Residents of earth return to work and school en masse after holiday celebrations. On January’s second trading day, the results of the official Santa Claus Rally are known and on the fifth trading day the First Five Days “Early Warning” system sounds off, but it is the whole-month gain or loss of the S&P 500 that triggers our January Barometer.

As defined in the Stock Trader’s Almanac, the Santa Claus Rally (SCR) is the propensity for the S&P 500 to rally the last five trading days of December and the first two of January an average of 1.3% since 1950. The lack of a rally can be a preliminary indicator of tough times to come. This was certainly the case in 2008 and 2000. A 4.0% decline in 2000 foreshadowed the bursting of the tech bubble and a 2.5% loss in 2008 preceded the second worst bear market in history.

The January Barometer (JB) has registered 12 major errors since 1950 for an 83.3% accuracy ratio. Including the eight flat years yields a .722 batting average. Over the years there has been much debate regarding the efficacy of our January Barometer. This debate is debunked in today’s alert to our newsletter subscriber’s.

Midterm Year Volatility Arrives Early as Fed Turns to Fighting Inflation

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