Posted on Sunday, February 24th, 2013 | In Exchange Traded Funds
Six offbeat indicators say the stock market is a “buy” in spite of the sequester threat, disappointing economic data and trouble in Europe
Stop worrying about the escalating VIX – the Chicago Board Options Exchange Volatility Index (or “fear index”). The VIX has already been overruled by The Santa Claus Rally, the First 5 Days Indicator, the January Barometer, the Chinese Zodiac indicator, the Super Bowl Indicator, and the Sports Illustrated Swimsuit Edition Indicator which say that the stock market will be a “buy” for 2013 and close the year in positive territory ten months from now.
These are the six offbeat indicators which predict how markets will perform based on seemingly irrelevant factors. Each one of the six offbeat indicators has an established “80 percent” accuracy rate, even though stock market performance has nothing to do with the events upon which the indicators are based. Believers in the offbeat indicators are content that the S&P 500 (NYSEARCA:SPY) and broad stock market indexes are destined to show gains for 2013 because each of the six indicators has registered “buy” signals.
My friend Jeffrey Hirsch of the Stock Trader’s Almanac coined the first three indicators: the Santa Claus Rally Indicator, the First 5 Days Indicator, and the January Barometer. The Santa Claus Rally Indicator tells us that if the stock market rallies hard during the last three days of the old year and first two days of the New Year, the S&P (NYSEARCA:SPY) tends to be positive for the New Year. Even though we saw declines on December 27 and 28 as well as January 3, the S&P 500 (NYSEARCA:SPY) advanced 2.8 percent during that period and the Dow (NYSEARCA:DIA) climbed 2.1 percent.
Jeff’s “First Five Days” indicator is based on the notion that if the first five days of the New Year are bullish, then the S&P 500 (NYSEARCA:SPY) will likely be positive for the entire year. Beyond that, the January Barometer Indicator is based on the entire month of January. If January is a positive month for the stock market, then the S&P 500 (NYSEARCA:SPY) is forecast to finish the entire year in the green. Given the fact that all three of Jeff’s seasonality indicators have sent us positive signals, we have a three-for-three trifecta suggesting that the S&P 500 and broader stock market will finish with positive gains for the year.
The Chinese Zodiac Indicator (or Chinese New Year indicator) turned out to be our fourth positive stock market omen for 2013. According to CSLA, Year 2013 is the Year of the Black Water Snake, which represents major transformation and change. The year looks relatively benign until August, which appears to be a particularly difficult month. Overall, the Chinese Zodiac reading tells us that the Year of the Black Water Snake is likely to be weak, but more balanced, reducing the likelihood of a significant, catastrophic event as experienced in the infamous snake years 1929 and 2001. Although there is no alleged accuracy rate published by CSLA about the indicator’s performance, we can always hope that the snake’s “skin shedding” characteristic will inspire us to shed non-performing stocks from our portfolios.
The Super Bowl Indicator tells us that if the winning Super Bowl team comes from the original National Football League, the stock market will be bullish for the rest of the year. The winning Baltimore Ravens were formerly known as the Cleveland Browns (an NFL team) until owner Art Modell relocated the team to Baltimore. Once the team was relocated, the NFL treated it as an expansion team and shifted it to the American Conference.
The most popular offbeat indicator has an even better accuracy record than the Super Bowl Indicator’s success rate. Research conducted by the Bespoke Investment Group has suggested that the S&P 500 (NYSEARCA:SPY) will be positive for the year if an American model graces the cover of the annual Sports Illustrated Swimsuit Edition magazine. A foreign model will signal a negative S&P for the year. This year brought a return of our very own 100% blonde, beautiful, American Kate Upton. Ms. Upton has an established track record for success: She was on the cover of last year’s Swimsuit Edition and the S&P 500 (NYSEARCA:SPY) had a total return of 16 percent.
Now that all six offbeat indicators are signaling a positive year for the S&P 500, (NYSEARCA:SPY) what do you believe? Are we heading for a positive year for the stock market? Regardless of the validity of the six offbeat indicators, a close look at the S&P 500 chart offers another, more conventional indicator we can use which also adds to the bullish case:
Despite the recent swoon at 1,502, the S&P 500 remains above its 50-day and 200 day moving averages, a bullish configuration. For the short term, momentum and relative strength signal the possibility of an upcoming short term decline, however significant support rests at the 1500 level and at several other strong points below. Read “Weekly Market Commentary: Breadth Sell”
The index finds support at 1500 and resistance at 1550, and a break above that level would open the door to higher prices ahead. Such a move would confirm the “buy” signals just issued by these six offbeat indicators and prove that they are correct yet again.
Bottom line: Regardless of possible short term problems with the sequestration budget cuts, a recession in Europe and a possible recession in the United States, these six oddball indicators have a remarkable track record of success and all say that the stock market is a “buy” for 2013.
About John Nyaradi (http://www.wallstreetsectorselector.com)
John Nyaradi is Publisher of Wall Street Sector Selector: Your Home For ETF Investing! John writes a weekly guest column, John Nyaradi’s ETF Edge for MarketWatch.com and his investment articles have appeared in many online publications including Trading Markets, Money Show, Yahoo Finance, Investors Insight, Fidelity, ETF Daily News, iStock Analyst , among many others. His book, Super Sectors: How to Outsmart the Market Using Sector Rotation and ETFs, is published by John Wiley and Sons and included among the Years Top Investment Books in the 2011 Stock Trader’s Almanac.