How stocks react when the year starts strong

It is a well documented statistic in trading diaries of the last half century that a strong first week and/or month of the year are usually accompanied by a subsequent solid year, however it requires more than simply a good first day. Below are the 12 cases since 1950, where the S&P was up at least 1% on the first day of the year and the following performance, listed in order of first day performance. The results are very normal, which is probably contrary to most trader’s expectations. On the five occasions where the 1% Day One followed a positive Fourth Quarter and a Positive December, Day 2 was 1-4.

When the First Trading Day of the Year
Is Up at Least One %

FIRST FORWARD S&P PERFORMANCE
YR DYOFYR DAY WEEK MONTH QTR
1988 3.46 1.05 -3.30 -0.14 0.06
2003 3.21 -0.05 2.04 -5.36 -3.58
2009 3.06 -0.47 -4.45 -10.01 -9.61
1975 2.38 0.68 1.34 9.61 16.06
1955 2.10 -0.90 -2.61 -0.08 0.54
1987 1.74 2.33 4.98 12.17 19.14
1990 1.75 -0.26 -2.80 -8.51 -5.84
1951 1.64 -0.39 1.69 4.29 3.03
2006 1.63 0.37 1.59 0.16 2.93
2010 1.58 0.31 1.23 -3.15 4.98
2011 1.12 -0.13 -0.17 2.53 4.79
1970 1.01 0.49 -0.65 -7.80 -3.88
#UP-DN = 6- 6 6- 6 5- 7 8- 4
AVG%CHG= 0.25 2.29 -0.52 2.39
MED%CHG= 0.13 0.53 -0.11 1.74
MONTH = 21 TRADING DAYS
QUARTER = 63 TRADING DAYS

I have highlighted in Blue those six occasions where the subsequent ‘first week’ was positive as well, and in five of those six cases the following quarter was up solidly. If we can tack on another solid couple of days this week, the Bulls have reason to become encouraged, but we aren’t there yet.

Wayne Whaley is a Systems Engineering graduate from Georgia Tech who takes an engineering approach to tape analysis. He is a registered CTA, co-owner of Witter & Lester and the 2010 MTA Charles Dow Award winner for research surveying various tape measures. For more insight see www.witterlester.com.

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