January Barometer Has Ugly Start

Stocks dropped in the first five days of 2008, which means the pressure is rising on the so-called January Barometer.

The Stock Trader's Almanac states that as the S&P 500 goes in January, so goes the year. The January Barometer, as it's called, predicts the year's course with a 75% accuracy, and has been especially prescient in forecasting bear markets.

"January is up three-quarters of the time, and so it has less significance on the bullish side," says Miller Tabak strategist Phil Roth. "But when January finishes down, it has shown great relevance in predicting a down year."

According to Roth's calculations, the S&P 500 has been down 20 times on an annual basis since 1939, and 12 of those red years started with a January fall.

Every down January on the S&P since 1950 without exception, says the almanac, preceded a new or extended bear market or a flat market.

For many superstitious traders, the first five days of January, a corollary to the barometer, serve as an early warning system. The last 36 times the first five days were up, full-year gains followed 31 times, for an 86.1% accuracy, says the 41st version of the almanac. And the 21 downside first five days were followed by a less accurate 11 up years and 10 down.

In the first five trading days of 2008, the S&P 500 fell 5%. RealMoney.com columnist Helene Meisler shrugs off the superstition as silly.

"You can't base an entire year's performance on the first five days of trading," says Meisler, who runs TheStreet.com's Top Stocks portfolio. "It's like the Super Bowl indicator, and I certainly wouldn't make a market call on that."