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Stock Indicators Send Muddled Message

January 15, 1990

NEW YORK (AP) _ Wall Street isn’t making things easy this year for investors who want to take a cue from the stock market’s performance in early January.

Since New Year’s, the market has zigzagged through a pattern of almost daily course changes, frustrating would-be bulls and bears alike.

In so doing, it has clouded the picture for anyone trying to make sense of such traditional phenomena as the January barometer, the January effect, and the January ″early warning system.″

The January barometer, popularized by investment adviser Yale Hirsch, holds that the trend of stock prices in the first month sets the tone for the rest of the year.

Its final verdict won’t be in for a while yet. To date, however, it seems to have signaled only that ″stocks will fluctuate″ as 1990 passes.

For those who can’t bring themselves to sit on their hands until Jan. 31, Hirsch also has published studies on a supposed early-warning barometer that covers just the first five sessions of the year.

Over that span this month, the Dow Jones average of 30 industrials gained 41.17 points, or 1.5 percent. But that advance was more than wiped out in the next two trading days.

This erratic behavior also has confounded many followers of the so-called January effect, a historical tendency toward better-than-normal performance in the first few weeks of the year for the market in general, and small stocks in particular.

Some observers think the January effect, with all the widespread attention it gets these days, has fallen victim to its own press clippings.

Hirsch’s monthly letter Smart Money has itself been urging subscribers not to try to play it this time around, on the rationale that ″if everyone knows about it, it isn’t worth knowing.″

A good many analysts also aren’t professing much dismay over the absence of any decisive ″forecast″ so far from the traditional January indicators.

The early-warning system in particular, they say, has been consistently inconsistent in its readings over the past few years.

In 1989, according to calculations by William LeFevre at Advest Inc., the Dow average rose 1.42 percent over the first five sessions, correctly portending an up year. But the average was down 1.42 percent in the first week of 1988, which also wound up a winner.

In 1987, it rose 5.61 percent in the first week. By yearend, the average’s net gain had shrunk to 2.26 percent, rendering the ″accurate″ forecast useless for any practical purpose.

The statistical evidence gives stronger support to the January effect, which has been attributed to such influences as the end-of-December tax selling when New Year’s arrives.

According to Joanne Hill and John Kilgannon, analysts at PaineWebber Inc., January has indeed been the best month of the year for total return - dividends plus capital gains - in the stock market during the ’80s and over the past 22 years.

In the 22-year span, however, it produced positive results only 55 percent of the time. So even with its historical edge, Hill and Kilgannon concluded, owning stocks in January ″is far from a sure thing.″

End Adv for Monday Jan. 15

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