Getting close to a new year, and many folks are wondering is this going to be a good year or bad year for the stock market.
While many folks are wondering, I am waiting for the first 5 days of trading to give me an idea of the market direction this year. You see, there is some correlation between what happens in January, on the S & P, and what happens of for the stock market for the rest of the year.
It is called the January Barometer and has 2 parts. Since 1950 it has with a fair degree of correlation predicted what the stock market will do.
Part 1: The first 5 days of trading of the S & P 500, has 85 percent correlation with the direction of the market. If the SP is up the market is up. If the S & P is down the market it is down. SO watch. Any charting service service will let you look at the S & P. Try Yahoo finance or www.stockcharts.com for example.
Part 2: Whatever happens on the S & P in the first month of trading has a 90 percent correlation with what will happen for the balance of the year. So stay tuned.
How do you us this? Well a few ideas:
- If the S&P is sideways, that is perfect for credit spread strategy, or covered calls.
- If the S&P is up, growth strategies will be GREAT. Like the Dogs of the Dow or directional trading to the up side.
- If the S&P is down, consider a protective PUT, to save your account, or move to CASH. Better to be even at the end of the year than lose money.
Good Luck. Or even better Happy TRADING.