• Study Of The Week: Does The First Day Of The Year Matter? Sure Looks Like It.

    by  • January 8, 2013 6:30 am • Lighter Side, Study of the Week • 0 Comments

    We’ve all heard about “So goes January, goes the rest of the year.”  Rocky White recently showed there is some real truth to that old saying.

    Not to be outdone, he made some solid arguments that if all you looked at was the first five days of January – you could extrapolate that out as well to show what very well might happen the rest of the year.  In fact, the stronger (or weaker) the first five days were, the better (or worse) off the yearly returns were.

    The next question is what about the first day of the year?  Can we determine anything from this very small sample size?  In all reality, I’d much rather look at the whole first month – but as crazy as it might seem, the first day sure seems to be a nice indicator for the rest of the year.

    Just a quick look at all the returns since ’00 and the majority of the time the first day has usually been dead right.

    Take another look at the returns above.  Various times the stronger that first day, usually the better the returns.  Not to be outdone, we’ve seen some weak first days and those have lead to weak yearly returns as well.

    Sure enough, it looks like the stronger the first day, the better the yearly returns.  Since, 1950, looking at all the Dow up 2% on day one (like we saw last week), the average return the rest of the year was nearly 15 percent.  Interestingly, there’s never been a down 2 percent day.

    Taking it a step further to get more results, looking at all the up/down days of 1.5 percent and once again the results say that first day is very meaningful.  As you can see here, when the Dow is up 1.5 percent the rest of the year is up 12 percent (and higher 86% of the time) versus when it is down 1.5 percent on day one and returns of just slightly positive the rest of the year.

    Should you trade just based on one day, of course not.  At the same time, I don’t think I’d be ignoring this very strong phenomena either.  I like to think of this like dominoes.  It just takes one to fall and it could start a very strong chain reaction.  So far, so good.

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