FIRST FIVE STOCK TRADING DAYS OF THE NEW YEAR

A part of the lore of the stock markets is that ass the first five trading days of the new year go, so will the year.  The first five trading days this year were down which signals a down year.*  In addition, the year of mid-term elections (such as 2014) is usually the weakest of the stock market years.  On the other hand, both janet Yellon (new Chairman of the Fed) and Ben Bernanke (outgoing chairman) forecast this will be a good year economically.  If so, I think it would be unusual for the stock markets to go down.

* Jose Ursua, a former colleague of mine at Goldman Sachs, has run these numbers all the way back to 1928. He finds that when stocks rallied during the first five days, there was a 75.4 percent chance of a rally for the year. For the period since 1950, the probability rises to 82.9 percent. Few rules in finance are as unambiguous as that. So when the first five days has been net positive for the Standard and Poor’s -- and I’m feeling bullish in any case -- I’m especially confident.

This year I’m still feeling pretty bullish, but the five-day rule is against me. U.S. stocks fell 0.5 percent -- nothing drastic, but down nonetheless. Over the whole period since 1928, a negative start implies a 47.8 percent chance of a negative year; since 1950, the figure’s about the same, 46.4 percent. In both cases, call it 50-50.

http://www.bloomberg.com/news/2014-01-14/what-five-days-of-trading-tell-us-about-2014.html