Alpha Power Investing Newsletter

February 1, 2018

Power Indexing and the January Barometer
 

The month of January 2018 was a good one for stock market investors.  If history proves an accurate guide, this piece of good news may have favorable implications for investors as the remainder of 2018 unfolds.  

A stock market tool referred to as the “January Barometer” was first introduced way back in the early 1970’s by Yale Hirsch, the founder of the Stock Trader’s Almanac.  The premise behind this indicator is a simple one: “As January goes, so goes the year.”  In other words, the underlying theory states that if the S&P 500 Index shows a gain for the month of January, then the index should show an additional overall gain for the remaining 11 months of that year.

According to the research in the Stock Trader’s Almanac 2018 (Wiley), since 1950 there have been 41 years when the S&P 500 Index generated a gain for the month of January.  During these 41 years the S&P 500 Index also:

  • Generated additional gains 37 times (90% of the time) over the remaining 11 months (February through December) of the year with an average annual gain of +16% (price appreciation only).
  • Generated a loss 4 times (10% of the time) over the remaining 11 months (February through December) of the year with an average annual loss of -9% (price appreciation only).

As many of our readers and investors know, the Alpha Mid-Cap Power Index Managed Account strategy invests in the S&P MidCap 400 Index each year during the “Power Zone”, which includes the months of January through May and November and December, regardless of whether or not the S&P 500 Index posts a gain in January.  Nevertheless, in order to illustrate the potentially favorable implications of the “January Barometer” in 2018, let’s take a closer look at how the S&P MidCap 400 Index performed over the seven-month “Power Zone” period ONLY during those years when the “January Barometer” was bullish. 

Figure 1 displays the performance of S&P MidCap 400 Index since its inception in 1981 ONLY during the “Power Zone” months for those years when the S&P 500 Index showed a gain for the month of January as a whole. 

 
Since the inception of S&P MidCap 400 Index in 1981, there have been 22 years when the S&P 500 Index showed a gain for the month of January.  For each of those years during the “Power Zone” months the S&P MidCap 400 Index:
  • Showed a gain 21 times (95% of the time), with an average annual return of +17.5%
  • Showed a loss 1 time of -7.5% (1994)

Figure 2 displays the cumulative total returns of the S&P MidCap 400 Index ONLY during the “Power Zone” months (January through May and November and December) during those years when the S&P 500 Index posted a gain for the month of January.

 
It is important to remember that past results do not guarantee futures results.  While the historical performance of the S&P MidCap 400 “Power Zone” has been extremely consistent during years when the “January Barometer” was bullish – as evidenced by the “lower left to upper right” nature of the equity curve displayed in the chart above – the loss in 1994 of -7.5% serves as a reminder that anything can happen.  

Regardless of what happens in 2018, we believe the key point is simply to note that the Alpha Mid-Cap Power Index Managed Account is a strategy with a consistent record of long-term success. 

To read more about Alpha's strategies, please go to the Strategies and Performance page of our website at www.alphaim.net to read the brochures and view the actual performance results.
 

Jay Kaeppel
Vice President and Director of Research
Alpha Investment Management, Inc.
877-229-9400
www.alphaim.net
info@alphaim.net

Disclosures:  Past performance is not a guarantee of future performance.  Indexes are not investment vehicles and persons cannot invest directly in an index.  The returns illustrated above are not returns of any Alpha strategy and do not include management fees or the cost of funds, trading, or other expenses.  To see the impact of these costs, please refer to the net of fees and expenses performance data for specific Alpha strategies.  The illustrations above are designed to quantify the effect of certain time periods on the S&P MidCap 400 Index. The data used to construct the illustrations were obtained from third-party sources.  While Alpha believes the data to be reliable, no representation is made as to, and no responsibility, warranty or liability is accepted for the accuracy or completeness of such information.

Alpha Investment Management, Inc. is a SEC registered investment advisor.  Such registration does not imply a certain skill or training and no inference to the contrary should be made.  The information and opinions expressed in this document are for informational purposes only.  Any recommendation or opinion made in this document may not be suitable for all investors.  The information contained herein does not constitute and should not be construed as investment advice, an offering of investment advisory services, or an offer to sell or a solicitation to buy any security.


© 2018 Alpha Investment Management, Inc.

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