At the end of last week, I listened to an analyst talk about an interesting statistic, and he spoke about it as if it were a reliable gauge for investors to use. He said that when the market is up the first week in January, it finishes the month ahead some 77% of the time, and when the market is up for the month, the year finishes ahead some 89% of the time, or so my memory recalls. The point is that statistically the “January Effect” suggests direction for the market. My question is: do any investors/traders trust the probabilities represented?
In no-holdem poker, when one looks at his or her hole cards, looks at the cards on the table, one can assess position based on odds. Odds are a reliable metric to use because they never change, no matter what the other players in the game do. There are but 52 cards in every deck and x-amount of players at the table, so it is a closed system.
The market, however, is not a closed system. The variables that affect its movement are many and unpredictable, so how can one rely on such statistics when devising trading or investing strategies? Yet, the numbers are the numbers, and if one wants to play the odds, the odds are good for betting, if we could only keep Iran, Europe, oil, Congress, earnings, news, and whatever else out of the game …
Even with a focus on earnings, investors will be watching Italian and Spanish government bond sales next week.
The above is what we can expect for some time in the market. Europe this and Europe that is now the storyline, at least until the ECB steps up as a lender of last resort. The longer it resists, the longer the market will look to Europe for direction, no matter what January does …
Analysts and executives expect 2012 U.S. auto sales to grow 4 percent to 9 percent, the third consecutive annual gain. The only reason automakers are not more bullish is the risk that the sovereign debt crisis in Europe may trigger a broader slowdown.
Just three years ago, the U.S. auto industry quietly breathed on life support. Today, an injection of adrenaline from the U.S. government, a self-inflicted, still bleeding wound from Toyota, and a new attitude from unions and management alike, has the U.S. auto industry gaining back global and domestic market share. Oh, but that pesky European issue is still hanging around.
“Ultimately, the market is still progressing towards a test of the European Central Bank’s reluctance to be a lender of last resort.
See what I mean about the variables and the odds? This month through March, the European news will ebb and flow, as will the market …
What is the best way to trade the U.S. non-farm payroll as markets tend to move so wildly around the announcement of these figures?
They didn’t seem to move wildly with the announcement of December’s employment numbers, but I get what you are saying. Here’s my not-so original thinking. Standing under a falling knife is a good way to get cut. Why bother trading around the announcement if it is problematic for you? Wait until the numbers are out and then go with or against the flow, depending on what you know or think you know.
Trade in the day – Invest in your life …
