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Predicting the Rest of 2010


Finance Professor Scott Rothbort will be on Stockpickr Answers on Monday, Feb. 22, to respond to your questions. Ask away!

MILLBURN, N.J. (TheStreet) -- With the first month of the year well behind us, it's time to tackle the market proverb: "As January goes, so does the rest of the year."

The theory behind this maxim is that the market's performance in January will be indicative of the remainder of the year. In other words, if the market increases in January, then the rest of the year will also trade positively. On the other hand, if the market falls in January, then the rest of the year will also bring market declines.

So in the spirit of one of my favorite shows, Mythbusters, the Finance Professor will attempt to prove or bust this market saying.

As always, I start with my data base of returns for the S&P 500 (SPX) going back to 1950. For each of those years, I calculated the returns for January, the rest of the year (February through December), and the full year. To tie in the data with my recent article on how to trade the midterm elections, I've color-coded the election cycle years (blue: midterm election year; green: year before a presidential election; red: presidential election year; yellow: year following a presidential election). The table of returns is presented below:

In total, there are 60 years of returns. Here are my observations:

1. In 44 of the 60 years (73% of the time), the SPX rose for the full year. Thus, in 16 of those years (27% of the time), the SPX declined.

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