Predicting 2014 At The NSE, Sort Of Anyway…

Image

In the midst of all the New Year resolutions being set, investments being contemplated, you may want to throw in a mention or two of the January Barometer. What’s the January Barometer you say? Well, read on!

As described by Wikipedia ( All hail the Great Wikipedia!) the basic premise of this ‘predictive’ indicator is that as January goes, so goes the year. A rise in the market in January signals that the year has a higher chance of rising. A fall in the market in January indicates the market could close lower than the previous year’s close.

But does any real evidence back up this theory especially at the Nairobi Stock Exchange?Checking the NSE 20 index performance for the period 1992-2013, we saw some interesting results:

The January Barometer has correctly predicted the direction of the stock market with an accuracy ratio of 77.27%, a positive return has been correctly predicted with a 73.33% accuracy. But it’s the negative return prediction that is amazing; the indicator has an 85.71% hit rate. It would have been a perfect 7 out of 7 record if annual return for 2002(0.58%) had not remained basically flat!

January vs Annual Returns

January Barometer at play 1992-2013 (click on image for a larger view)

Another January Barometer theory is that the first five trading sessions of the year have similar predictive power. For the period 1992-2013, when the first 5-days of January were up, the year is up 73.33% of the time. When the first 5-days of January were down, the year is down 71.43% of the time.

5-Day vs Annual Returns 1992-2013

5-Day vs Annual Returns 1992-2013 (click on the image to see larger view)

Clearly there may be some above average correlation between January performance and Annual performance, one worthy of consideration, even if just for folklore purposes  🙂

The 5-Day price return for 2014 is 1.70% which could be possibly pointing to a positive return for 2014. We shall return to check the full month indicator reading in early February 2014. This will give us something to ponder as we begin 2014.

Let me know in the comments what you think about the January Barometer.

Advertisements

Running with the bull market, anyone?

Bull Market at the NSE

Where the momentum is sustained for years, you start checking if the end is in sight
(Click the image see bigger image)

The Nairobi Stock Exchange has been in an roaring uptrend for two years including a roaring Q1 2013 20% advance.

But as we look to 2014 and the various opportunities it will present, the question that perhaps should be starting to form in the advised trader’s mind is,

Are we looking at the business end of a Stock Market rally after consolidation?

Any investors who watched this market rampage up and down in the second half 2013 must have been hearing the old saying “The market giveth, the market taketh” echoing every day on the screens and in the newspapers, and rightly so.

Despite the cheerleading of the media and stockbrokers(well, the brokers believe in their product you see…) the spirited run that we have seen may be thought to be faltering before our very eyes, but behold the bullish signals are still showing.

With the intermingling of the Index with its Short Term Moving Average (13MA in  this case) witnessed in the last few weeks – read it as hard core consolidation – the NSE20 index will be hard pressed to break through the 5,200 points resistance area. But long term, this market remains primed for a move all the way to new highs, do I hear anyone say 6,000? This market run isn’t done yet!