Broker Check

February 2024 Monthly Outlook - January Trifecta

February 08, 2024

There is an old Wall Street axiom called the January Trifecta.  It goes like this:

  1. The “Santa Claus” rally – were there gains in stocks from Christmas eve until the 2nd trading day of the new year?
  2. The “First Five Days” – did stocks gain in the 1st five trading days of the new year?
  3. The “January Barometer” – did stocks have gains for the month of January?

History shows that when all 3 occur – a Trifecta – then the rest of the year is positive.  This indicator has happened 31 times since 1950, and it was accurate in 90% of those years.

Unfortunately, this year we only got 2 out of 3.  We did not get a Santa Claus rally, but we did get the other two.  January actually saw us finally get back above the previous all-time high (S&P500) from way back in Dec 2021.  Breaking through to a new all-time high is very bullish.  But it does not mean the sky’s the limit.  In fact, I see some underlying conditions that are cause for a bit of caution.

While the broad index (S&P500) has continued to move higher, breadth – the number of individual companies moving higher -  is declining.  This is called a “negative divergence” and can be a warning sign of the potential for a pullback.  The chart below shows the S&P 500 in the top panel and the two lower panels show the percentage of stocks above their 50-day moving price average and the percentage of stocks in a bullish uptrend.  Note how the S&P climbed during January (green line) while both of the breadth indicators have been declining (yellow lines).  This is something I am watching.  The key is for the S&P 500 to stay above the previous all-time high from back in Dec 2021 – the red line in the top chart.  That level is 4,820. If the market stays above that level, even with the negative divergence, then I think it will continue to move slowly higher during the year.  If the negative divergence forces the market to drop below 4,820, then we are likely in for a bigger pullback and we will respond accordingly.

There are two other non-financial factors that could impact the markets in 2024.  One is the geo-political events around the globe and the other is the presidential election.  The second chart below shows how the S&P500 has done in every presidential election year since 1950.  As you can see, these years generally start slowly then have a brief and shallow pullback around March before starting to move higher again. 

Also note that the average return over these years has been roughly 7%.

I hope this report finds you well and that this information is helpful.

 

Please give us a call if you have any questions or concerns.

I want to say a big THANKS to the following clients who donated to Memorial Sloan Kettering through my Cycle for Survival participation.  I will be matching each of their donations so as a Directional Wealth family we make as big an impact as possible:  Mike R, John W, Mary F, Dawn B, Jay C, Jay L, Donna K, Erin C, Mary Ann C, Ilene N, Monique S, Joann S, Susan H, Sheri M.

 

February Calendar of Events   (comments and additions for future months are always welcome)

  • February is Black History Month.  Let’s all strive for understanding and acceptance for people of all colors, nationality, and religions.

 

February  2nd                   Groundhog Day –  let’s hope Punxsutawney Phil doesn’t see his shadow

February 11th                  Super Bowl Sunday  - who are you rooting for?

February 14th                  Valentine’s Day   

February 19th                   Presidents Day

 

Best regards,

Jim

 

Source: All Star Charts, StockCharts.com cycle

 

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