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!
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.
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.