Jan 19 2010

Investing Term Tuesday – January Barometer.

The January Barometer is based on the theory that the performance of the S&P 500 during the month of January is indicative of how the market will perform for the year. For example, if the S&P 500 is up for January, the January Barometer states that the stock market as a whole should end the year up as well.january barometer

In practice, the January Barometer produces a slightly better than 50% success rate. However, if an investor simply uses the January Barometer when determining whether to invest, he is doing little more than timing the market.

Even worse, he’s timing the market with a very insensitive timing mechanism, since the theory bases the prediction of market performance for an entire year on the performance of a single month.

Also, any gain that may be had by blindly following the January Barometer theory can be quickly erased by a false prediction of a bull market for the year ahead.


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