The January Barometer — a stock market indicator in play right now — states that the investment performance of the S&P 500 in January can predict its performance for the rest of the year.
That means if the S&P 500 posts a gain in January, that will lead to a positive result for the remainder of the year. Likewise, if the S&P 500 falls in January, then the stock market will perform poorly for the year.
With the S&P 500 climbing 1.7% in January, despite Wednesday's losses, the indicator suggests the stock market is on track for another year of gains.
The indicator has posted only 12 major errors since 1950, with an 83.6% accuracy rate, according to Stock Trader's Almanac. The last "major error" was in 2021, when the S&P 500 closed January with a 1.1% fall. That year, the S&P 500 rallied 26.9%.
The January Barometer — discovered by the Almanac's Yale Hirsch in 1972 — is one of a few new-year indicators that are closely watched around this time of year.
The First Five Days of January indicator gave a bearish indication for 2024. The Santa Claus indicator, which is based on the final days of the year and the first few of the new year, also gave an unfavorable signal.
Sentiment Indicators Worth Watching
There's also value in studying the stock market's sentiment indicators. One is the Cboe Volatility Index, also known as the VIX.
A popular contrarian indicator is the Investors Intelligence survey of market newsletters. You would think the professional advisors, the so-called experts, would provide valuable information on market direction. But the more they agree, the more their collective advice tends to be on the wrong side. Professional advisors are human too and susceptible to emotions like the rest of us.
Understand that these are secondary indicators — analysis of price and volume of the major market indexes remains primary. However, psychological indicators let you know when the environment may be changing and confirm the chart action.
Stock Market Leaders To Watch
Now is an important time to read IBD's The Big Picture column, with the stock market outlook in a confirmed uptrend. However, always be on the lookout for changing conditions. And check out today's Big Picture for an updated exposure level in the stock market.
If the January Barometer holds true, then make sure you keep an eye on daily breakouts. A great resource is IBD MarketSmith's "Breaking Out Today" list. It shows MarketSmith Growth 250 stocks that are breaking out past new buy points. There were three breakouts today, including Manhattan Associates, which is breaking out past a 230.61 flat-base entry.
Meanwhile, the MarketSmith "Near Pivot" list shows stocks nearing buy points in bases, like Trex. Trex stock is approaching an 84.68 flat-base entry.
To find more stock ideas, check IBD Stock Lists, like IBD 50, Big Cap 20 and Stocks Near A Buy Zone. These features identify bullish patterns and buy points and should be checked every day.
