A Bumper Crop of Market ‘Indicators’
NEW YORK (AP) _ For followers of stock market ″indicators,″ one of the busiest times of the year is at hand.
First of all, there is the so-called January barometer, popularized by investment adviser Yale Hirsch. It states simply that ″as January goes, so goes the year″ in the market.
Then there is what Hirsch calls the January early warning system. From examination of his historical data, he concludes, ″January followers can often get a glimpse of what lies ahead by watching the market’s action during the first five trading days of the month.″
If that isn’t enough to satisfy your appetite, late this month the annual reading will be available from the Super Bowl indicator.
This bit of whimsy came into being when Wall Street analysts noticed that stock prices have unfailingly risen in years when the pro football championship game was won by a team that was a member of the National Football League before the NFL’s merger with the rival American Football League.
Conversely, when an original AFL club triumphed, the market had a poor year.
Last year, both the January barometer and the Super Bowl indicator performed handsomely, correctly pointing to a rising market.
Standard & Poor’s 500-stock composite index rose 0.2 percent during the month, and the Chicago Bears, a vintage NFL team, scored a one-sided victory in the Super Bowl.
The January early warning system malfunctioned, however, as the S&P 500 posted a 1.6 percent loss in the first five trading days of the year. What spoiled things was a big drop on the fifth day, Jan. 8, that was attributed to selling by professionals engaged in computer program trading.
Aside from serving as entertaining diversions in a business that can be very frustrating, of what use are these indicators?
Clearly, there is no logical reason to give the Super Bowl indicator any credence. Even the analysts who publish data on it each year were a bit stunned when they found that some investors were taking it seriously.
Defenders of the January barometer contend it makes more sense, noting that such events as the president’s state of the union message and the convening of a new Congress typically take place in the first few weeks of the year.
Business as well as political agendas are set at the start of a new year, presumably helping to give investors a sense of what is to come in the months that follow.
Mark Hulbert, editor of a newsletter that rates the performance of investment advisory services, begs to disagree with this view. He says that over the past 70 years, a simple buy-and-hold strategy would have produced much better results than moving in and out of stocks according to the dictates of January.
″Indicators discovered from an ad hoc and arbitrary research rarely have much worth for the investor,″ Hulbert writes in the current issue of the American Association of Individual Investors’ AAII Journal.
″What is it that makes investors cling to indicators long after their utility has been disproven? It is human nature to make the world simple, to persist in believing that despite all appearances to the contrary, there is a key that unlocks the complexity.
″This may be human nature, but it’s not necessarily good investing. Investing according to the January indicator can be hazardous to your wealth.″
End Adv PMs Monday Jan. 5