Daily Options Report

Ask and ye shall receive. This from Rennie Yang of Market Tells in response to our skepticism regarding the January Effect. Or lack thereof.

Hi Adam - happy new year! - regarding a weak January, you might find this interesting... best, RY

A down January is a longer-term negative sign. It doesn’t necessarily indicate the year will be lower, but it’s a good bet that a down January will lead to at least one subsequently lower monthly close. The table below highlights every year since 1930 in which the S&P lost ground during the month of January. Note that in 28 out of 29 cases, or 97% of the time, the S&P posted a subsequently lower monthly close within the next seven months (usually within three)…

S&P500 Closes out January with a Loss
2009 – Lower monthly close in one month
2008 – Lower monthly close in one month
2005 – Lower monthly close in two months
2003 – Lower monthly close in one month
2002 – Lower monthly close in one month
2000 – Lower monthly close in one month
1992 – Lower monthly close in two months
1990 – Lower monthly close in seven months
1984 – Lower monthly close in one month
1982 – Lower monthly close in one month
1981 – Lower monthly close in seven months
1978 – Lower monthly close in one month
1977 – Lower monthly close in one month
1974 – Lower monthly close in one month
1973 – Lower monthly close in one month
1970 – Lower monthly close in three months
1969 – Lower monthly close in one month
1968 – Lower monthly close in one month
1962 – Lower monthly close in three months
1960 – Lower monthly close in two months
1957 – Lower monthly close in one month
1956 – Lower monthly close in thirteen months (*)
1953 – Lower monthly close in one month
1948 – Lower monthly close in one month
1941 – Lower monthly close in one month
1940 – Lower monthly close in four months
1939 – Lower monthly close in two months
1935 – Lower monthly close in one month
1932 – Lower monthly close in two months

Also there's this from Floyd Norris in today's Times.

The stock market is up today. The S.&P. 500 ended the day with a gain of 1.6 percent.

You can turn to other places to read analyses of this move based on the performance of the dollar, or on Chinese growth, or on numbers indicating economic growth in many countries, or a lot of other reasonable sounding things.

But don’t forget the Day One effect.

Howard Silverblatt, the data maven at Standard & Poor’s, has pointed out that an investor who bought the S.&P. 500 stocks at the close of the last trading day of each months in the decade just ended, and sold at the close on the first trading day of the next month, would have earned 23 percent on his money in the Zero decade. (That figure ignores dividends and trading costs, as well as the interest that could have been earned by putting the money in T-bills the other days.)

These seasonality plays were popular in the 90's, but actually seemed to gain too much popularity and stopped working so well, so it's interesting to see them work again. I honestly thing that IS the January Effect. The Day One Effect lasts a few days into the new month, so thus we often see rallies early in month's. January being A month, it often sees rallies early on. The market more often than not rallies over the course of a calendar year. Well, at least it did before the last decade. So hence we see a rally the same year we saw a rally the 1st five days. Weakness at the start of ANY month probably is just not a good sign, but of course we had that last year and it was a bad signal.