I almost was one of the people that put money back in the market at the end of the year. It's a new year, Obama is coming in, things will improve, I figured. But I held back. I don't like to make market decisions based solely on gut. And even then, my gut is of two minds and one of them says this recession is going to be the worst of my lifetime.
Some stats do point to an up year this year. We've been hearing a lot this week how the market goes up a lot after a fall. My friends at the always smart Stock Traders' Almanac use a measure of the first five trading days of the year. It was on this measure that I -- thankfully -- pulled back last January. If the first five days are up, the year will be generally be up, they've found. Sy Hirsch invented this measure as an improvement on his other early indicator, which says however January goes, so goes the market for the year.
For the last 36 times that the market has been up for those first five trading days in January, the market has been up for the whole year, they say. And they judge the indicator to have a 86% accuracy ratio. This year it's a little confusing: the Dow was down a little, the S&P was up a little (both under 1%) and the Nasdaq was up 2.5%. By that measure the rally that started in December will continue.
But when there are big swooping moves in the market, they tend to cluster, not just happen in one calendar year. The Depression, the recession of the 1970s, the bursting of the tech bubble all played out over several years. Yes, there have been isolated down years in market history -- 1990 and 1981 are a couple examples. I don't think there's any credible indicator that says this recession will be just as mild as the one in 1990 now appears. So my gut, which told me to buy in December, is now telling me to stay put.
Do you have other big signals you've gotten a read on for 2009? I'd love to hear them in the comments.
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Reader Comments (Page 1 of 1)
1-11-2009 @ 2:01PM
Nick said...
If the government is considering a trillion dollar investment to get our economy back on its feet.... If it doesn't work, the value of the money you didn't lose to a bad market will certainly drop in value... If your betting on a poor economy for the entire year I would highly recommend seeking commodities to hedge your assets.
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