[RT] Barron's Letters - January Indicator

["JW" <JW@xxxxxxxxxxxx>]

Got this from a friend.  Interesting reading...

JW

----------------
January's Impact

To the Editor:
It's a shame investors may be shaken out of the market by all the talk
about a
down January predicting a down year ("The Cruelest Month?"3 January 31).
The real question is whether a down January predicts that the following
11
months will be down. Quite different. Of the 17 down Januaries of the
past 50
years, the Dow fell in the following 11 months just eight times, and was
higher
nine times. Might as well toss a coin.

Your readers might find it more useful to know that of the 17 years that
January
was down, 82% of the time the market was higher than its January 31
close (by
as much as 12%) sometime in the March to July period.

As my Barron's article on our Seasonal Timing System ("Seasons in the
Sun,"4
September 6, 1999) pointed out, the pattern of the market presenting a
buying
opportunity in the fall, and topping out into a correction in the
spring, is
extremely persistent, and these data show the pattern persists,
regardless of
whether the market is down for January, (or for the year). We use
short-term
momentum indicators to more closely pinpoint entry and exit signals.

                                                SY HARDING
                                                     President
                                          StreetSmartReport.com
                                        Meredith, New Hampshire

To the Editor:
The January Barometer predicts only rising markets well. For the years
in which
January was down, the market went down the subsequent 11 months less
than
50% of the time.

The indicator is much more accurate when predicting an up year than a
down
year. Also, please note that the statistics are slanted because they
compare the
total year to January. The proper comparison is the remaining 11 months
to
January. When you look at this, the January indicator's ability to
predict down
subsequent 11-month periods is worse than 50/50.

The only reason the indicator is rather accurate on rising Januaries is
because
the market usually goes up in about 70% of all years. Thus, to say the
market
usually goes up during years when we have rain or years that we have
federal
taxes is about as accurate.

                                            WILLIAM R. LANE
                                                    Las Vegas

To the Editor:
The relevant questions for an investor are: "Does January's performance
predict
the stock market over just the rest of the year (excluding January)?"
and "How
important is the effect?"

Over 1950-1999, a down January for the S&P 500 generated an average
rest-of-the-year fall of 1.9%, whereas an up January generated an
average rise
of 19.6%. This is a big difference.

The least toxic effect of down Januaries came in the non-inflationary
period of
1982-1999. In these years, a down January was followed by an average
appreciation of 6.5%, whereas an up January, on average, was a prelude
to a
12.3% rise, still a substantial difference.

So, should this year's bad January convince us to dump our stocks? These
calculations all predict that stocks are likely to fall by no more than
1.9% and
perhaps appreciate over the rest of the year. The January Barometer, by
itself,
doesn't predict a storm.

                                            EDWARD TOWER
                                          Professor of Economics
                                                Duke University
                                          Durham, North Carolina