Editor's Note: The following article was written by Raymond James Chief Investment Strategist Jeff Saut. It has been reproduced with permission for the benefit of the Minyanville community.

The stock market’s direction over the first week of the new year is an accurate predictor of its direction for the full month only 50% of the time. So much for the mantra, “So goes the first week of January, so goes the month, so goes the year.”

As the invaluable folks at Bespoke recently observed:

“Using data going back to 1900, we analyzed the performance of the Dow during the first 5 trading days of the year for every year since 1900, then calculated how the index did during the rest of January and the rest of the year. Based on the results, when the Dow is up more than 1% during the first 5 trading days of January, the average return during the rest of the month is 0.26% with positive returns 47.8% of the time. This is the worst ‘rest of January’ average performance among the 3 possible scenarios.

“While the average performance over the rest of the year is the most positive under this setup, the difference with the other possible scenarios isn’t significant. Back testing the January Barometer, however, shows that the month as a whole provides better insight into how the rest of the year will play out.”

Moreover, after last week’s 4.8% stock slide, I want to assuage fears that 2009 will be a repetition of 2008. While it’s true that the January Barometer (i.e. so goes January, so goes the year) has much better predictive accuracy (a 74% success rate), I have always preferred to combine the January Barometer with the December Low Indicator.

As described in The Stock Traders’ Almanac:

“When the Dow closes below its December closing low in the first quarter, it’s frequently an excellent warning sign…[Analyst] Lucien Hooper…dismissed the importance of January and January’s first week as reliable indicators, [and] noted the trend could be random or even manipulated during a holiday-shortened week.

Instead, said Hooper, ‘Pay much more attention to the December low. If that low is violated during the first quarter of the New Year, watch out. . . . If the December low is not crossed, turn to our January Barometer for guidance. It has been virtually perfect, right nearly 100% of these times’.”

For the record, the Dow’s December closing “low” was 8149.09, and I’ll be watching both the January Barometer and the December Low Indicator intently over the coming weeks.