Professor John J. McConnell
In my opinion, stock prices CANNOT be predicted.

After consulting the ‘January Barometer’ Wall Street meteorologists
have concluded the forecast for the stock market this year is
decidedly pleasant.
--- Business Week,1984

Another seasonal signal worth watching --- and possibly playing
through options --- is the January Barometer, or the strong tendency
of stock indexes to rise in years when they were up in January and
fall when the first month is down.
--- Barron’s, 1999

From mid-January through early February, the stock market came
under some heavy selling pressure. A negative January barometer
has us concerned for the coming months, and the year as a whole.
--- Barron’s, 2010
“The barometer, which indicates that as January goes,
so will the market go for the total year, has proven
correct in 20 of the last 24 years. The performance of
this indicator becomes even more striking when you
consider its simplicity, coupled with the fact that it is
making its prediction eleven months in advance.”
--- Yale Hirsch (1974)
The Stock Trader’s Almanac

“On the one hand, I am a believer in the efficient market
hypothesis,” said John J. McConnell, a finance professor at
the Krannert School of Management at Purdue University
who has studied the January phenomenon. “On the other hand,
given that the other January effect was such a powerful
predictor of the market during the past year, I am chastened.
The market has a way of humbling us all.”
--- The New York Times, 3 January 2009

For the 152 years from 1857 through 2008.
-
100 positive Januarys:
- Next 11-month return = 11.01%
-
52 negative Januarys:
- Next 11-month return = 2.84%
Figure 1. 11-month compounded excess returns for years when the January return was positive
from 1940 to 2008
0.6
11-month holding-period return
0.4
0.2
-1E-15
1940
1945
1950
1955
1960
1965
1970
1975
1980
1985
1990
1995
2000
2005
-0.2
-0.4
44 positive Januarys
39 positive 11-month returns
Average 11-month returns =11.71%
-0.6
Calendar years
Figure 2. 11-month compounded excess returns for years when the January return was negative
from 1940 to 2008
0.6
11-month holding-period return
0.4
0.2
-1E-15
1940
1945
1950
1955
1960
1965
1970
1975
1980
1985
1990
1995
2000
2005
-0.2
-0.4
25 negative January years
15 negative 11-month returns
Average 11-month returns =-3.65%
-0.6
Calendar years

For the 24 years from 1950 through 1973 (Hirsch Period)
15 positive Januarys:
Next11-month return = 21.93%
9 negative Januarys:
Next11-month return = -2.89%

For the 35 years from 1974 through 2008
23 positive Januarys:
Next11-month return = 18.07%
12 negative Januarys:
Next11-month return = -0.13%


Long-only
A purely passive strategy of being long the market all the time
Long/short
A strategy of being long the market over the 11 months
following positive January and being short the market over
the 11 month following negative January (coupled with
being long the market during all January)

Long/t-bill

T-bill-only

A strategy of being long the market over the 11 months
following positive January and being in t-bills over the 11
month following negative January (coupled with being long
the market during all January)
A strategy of investing in t-bills all the time
January-plus-t-bill
A strategy of being long the market during all
Januarys and investing in t-bills during the
other months of the year
Figure 3. Wealth accumulation based on the January Barometer, 1857 - 2008
Figure 4. Wealth accumulation based on the January Barometer, 1857 - 1939
Figure 5. Wealth accumulation based on the January Barometer, 1940 - 1974
Figure 6. Wealth accumulation based on the January Barometer, 1975 - 2008
Figure 7. Wealth accumulation based on the January Barometer, 1857 – 2010,
excluding 1940-1975 (Hirsch’s years)

2009 January return = -7.75%;
11-month subsequent return = 42.67%

2010 January return = -3.71%
11-month subsequent return = 22.61%

2011 January return = 3.19%
8-month subsequent return = -12.18%
Figure 8. Wealth accumulation based on the January Barometer, 2009- 2011
Figure 9. Wealth accumulation based on the January Barometer, 1857 - 2010
Figure 10. Wealth accumulation based on the January Barometer, 1927 - 2010
Figure 11. Wealth accumulation based on the January Barometer, 1974 - 2010