January ¿Bear or Bull? 31 december 2010

This post is dedicated to those who apreciate the historic statistics. (For a share of analyst the statistics are irrelevant because the market moves randomly and the events are independent of the precedent events -Stochastics Calculus-). 

I choose the Dow Jones Industrial Average/30 because is the only index that I have the complete data. Also is a very vulgar index, moves similar to the Standard and Poor's 500.

Seasonality. The historical statistics of percentage positive in the years of study. 

Long term, january bull. 

1929 to 2010

January very bull: 

- Seasonality

- Average return

1950 to 2010

Still bull. 

- Seasonality 

- Averge return

But the mid-term history is very, very different. 

2000 to 2010

Still bull. 

- Seasonality 

- Averge return

2050 to 2010

Very, very bear. 

- Seasonality 

- Averge return

Other important facts: 

1. When december finish positive (like this year), the next january: 

1.1 Seasonality            66%

1.2 Average return     +0.72%

Maybe, this fact is more meaningful

2. Whne december finish with a return of more of 5% (like this year), the next january: 

2.1 Seasonality            70%

2.2 Average return     -0.34%

This is very bear. 

2.3 In this case is important to see the data: 

The Mathematica Expectation is -0.34%. If that was a bet the chances are 3/10 to lose 5%,  7/10 to win 1%, and 1/10 to win 3%. Not very atractive. 

Conclusions

If I am a bull: 

1. Despite the overall statistics are bull, the last years are very bearish. And you have only 1/3 of chances of wining.
2. The Mathematical Expectation is negative. That is not good.
3. In the last 10 years, january is the worst month of the year.
4. Many bear signals are aligned with a bear statistics: Hindenburg Omen, CPC, VIX:VXV, and others.
5. This week the volume of the market was too low, but if monday the market confirms the signals with a good volume, will be a bad signal. ¿If many investors agree with this numbers will sell on monday? ¿And if the Big Guys sell longs and buy shorts according to the statistics?

If you are bull, take extreme caution in the january trading. Or ¿is time to become a bear?


Other important fact. June the worts month of the year (for bulls, the opposite for the bears) in the long and mid-term. Maybe a good strategy will be mantain liquidity in this month, and maybe, if you like risk and the conditions are good, to buy shorts.

¡¡Happy New Year!!

DJI Seasonality