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January Indicator Trifecta Crystalizes 2022 Outlook

Back in January 2013, standing on the brilliant shoulders of our late, great founder Yale Hirsch who invented the Santa Claus Rally (SCR) and January Barometer (JB) indicators back in 1972, we created the “January Indicator Trifecta” by combining SCR with the First Five Days Early Warning System and the full-month January Barometer reading. See pages 16, 18 and 118 of the Stock Trader’s Almanac 2022.

So far Santa has delivered the vaunted rally everyone has been talking about. With one day left S&P is up 1.5% for the SCR and the Dow just logged a new high for the first time since November. S&P logged another as well on top of it’s yearend high. NAS and R2K still have not but looked stronger today.

When all three of our “January Indicator Trifecta” reading are up the S&P 500 has been up 90% of the time, 28 of 31 years, with an average gain of 17.5%. When any of them are down the year’s results are reduced and when all three are down the S&P was down 3 of 8 years with an average loss of -3.6% with bear markets in 1969 (-11.4%), 2000 (-10.1%) and 2008 (-38.5%), flat years in 1956 (2.6%), 1978 (1.1%) and 2005 (3.0%). Down Trifecta’s were followed by gains in 1982 (14.8%) and 2016 (9.5%).

The first indicator to register a reading in January is the Santa Claus Rally. The seven-trading day period will begin on the open on December 27 and ends with the close of trading on January 4. Normally, the S&P 500 posts an average gain of 1.3%. The failure of stocks to rally during this time has tended to precede bear markets or times when stocks could be purchased at lower prices later in the year.

On January 7, our First Five Days “Early Warning” System will be in. In midterm election years this indicator has a poor record. In the last 18 midterm election years 8 full years followed the direction of the First Five Days. The full-month January Barometer has a slightly better record in midterm election years with 10 of the last 18 full years following January’s direction.

Our flagship indicator, the January Barometer, simply states that as the S&P goes in January so goes the year. It came into effect in 1934 after the Twentieth Amendment moved the date that new Congresses convene to the first week of January and Presidential inaugurations to January 20. When all three of these indicators are in agreement it has been prudent to heed their call.

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