January can often be a telling month for the stock market. In fact, the results from several studies have shown how January’s performance can be a harbinger of future stock market returns for the year ahead. One such study is referred to as the January Barometer. Specifically this stock market test assesses the direction of the Dow Jones Industrial Average (INDU) after the first five days, then the balance of January, in order to make a statement for the expected performance of the stock market during the remainder of the year. For example, Jay Kaeppel published his results of the January Barometer in Technical Analysis of Stocks & Commodities and found that the direction of the first five days of January, confirmed by a continuation of that pattern throughout the end of January, is often followed by the same pattern for the rest of the year. Also, if the market were to post a positive return for the first five days but reverse trend and end the month in the red, the expectations...
Price-based perspective on market behavior