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What January Really Says About Stocks

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Investment pros weigh in on the first-month phenomenon.

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It's show time on Wall Street.

As 2010 trading kicks off, many investors will now look to stock market performance in the month of January as a barometer for the rest of the year.

Traditionally, writes Fred Dickson of D.A. Davidson & Co., the first few trading sessions of a new year generally see higher stock prices.

Investors make beginning-of-the-year contributions to 401k/403b savings plans and money managers put these contributions to work. Davidson says he expects this seasonal pattern to repeat this month.

In his morning missive today, the market strategist also notes that many investors eye the stock price movement over the first five trading days in January, and for the month as a whole, as a gauge of what might unfold over the following 11 months.

Dennis Gartman is one of those investors. The longtime editor of The Gartman Letter emphasizes that the first five days of the year are often quite telling as far as the remainder of the year is concerned.

Gartman cites data from the Stock Trader's Almanac as evidence: In 31 of the last 36 years that saw gains in the first five days, full-year gains followed, for an 86.1% accuracy ratio and a 13.7% average gain in all 36 years.

"We shall watch the first five days with interest, for if we are able to remain long of equities through those first five days, our propensity to get longer shall rise," Gartman writes.

For more on the January phenomenon, we checked in this morning for a chat with Sam Stovall, the chief investment strategist at Standard & Poor's Equity Research.

"As goes January, so goes the year," Stovall tells us.

He points out that, from 1945 to the present, whenever the S&P has risen in January, it has continued to rise 85% of the time, posting an average increase of 11.6%.

How come?

"I think it is because investors are like dieters," Stovall says. "They look to January as a new beginning."

From his perch, Stovall is betting that we will see a "good" January this year.

"This if the first January after the bear market bottom," he says. "There have been 14 times since 1932 that we have looked at the first January after a bear market bottom. The S&P has risen 12 of those 14 times, posting an average increase of 3.7%."
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No positions in stocks mentioned.
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