A
Look at the First Five Days of the
Month Indicator and the January Effect
by Ron Griess
Proprietor, The
Chart Store
www.thechartstore.com
January 5, 2005
It
is January. Must be time to
dust off the old “first five trading days of January indicator”
and follow that with the “January Effect.” We have assembled the statistics for these two “popular in
January” indicators. We
selected the Dow Jones Industrial Average from 1886-2004 for our
study. Rather than just
looking at January alone, we have chosen to show results for all
“first five trading days” of each month and all 12 months for
the “Monthly Effect.” Our
study is presented in the tables and notes below.
The
First Five Trading Days of the Month Effect
Dow Jones Industrial Average 1886-2004
Table
Notes:
-
The
probabilities for the 12 month time period being positive when
the first five trading days of a given month are positive range
from 71.4% (May) to 63.6% (October).
-
The
probabilities for the 12 month time period being negative when
the first five trading days of a given month are negative range
from 51.2% (December) to 31.6% (March).
-
If
one were making a decision to buy on the “first five trading
days” rule for any given month, May would be the first choice
followed by January (71.1%).
-
The
“first five trading days” rule does not appear to provide
good odds for making a sell decision based on negative results.
However, one might consider buying against the rule in
March with the odds of the 12 month results being positive at
68.4%.
The
Monthly Effect
Dow Jones Industrial Average 1886-2004
Table
Notes:
-
Monthly
results are shown two different ways in our table:
for the entire twelve month period including the month
under examination and for the ensuing 11 months after the signal
is given. We prefer the
latter.
-
The
probabilities for the 12 month time period being positive when
the month is positive range from 77.9% (January) to 64.6%
(December), while the probabilities for the ensuing 11 month
time period being positive when the month is positive range from
70.1% (January) to 58.5% (December).
-
The
probabilities for the 12 month time period being negative when
the month is negative range from 61.9% (January) to 39.6%
(March), while the probabilities for the ensuing 11 month time
period being negative when the month is negative range from
50.0% (January) to 30.8% (October).
-
If
one were making a decision to buy on the “monthly effect”
rule for any given month, January would be the choice using
either full 12 months results (77.9%) or ensuing 11 month
results (70.1%).
-
The
“monthly effect” rule does not appear to provide good odds
for making a sell decision based on negative results.
January at 61.9% is above average, but falls off to 50%
when the ensuing 11 month criteria is applied.
October provides the best opportunity to buy against the
rule with the odds being positive at 69.2% when using the
ensuing 11 months as the measuring tool.
© 2005 Ron Griess
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