17 years of statistics – from as early as 2001 to 2017 – favour a stock market rally in January. I am referring to the Straits Times Index (STI).
When I say rally, it does not mean that discussing at length about Diabetes at a certain National Day Rally; I mean a stock market rally. But a rally can come in big and small sizes, just like the kopi that you drink at Starbucks which I am not a supporter of. I still prefer my daily brew at the local kopitiam where coffee means coffee mixed with a blend of assorted stuff like corn, soya bean and some other secret formula like butter. You fry them together, make a drink out of it, and it makes you a lifelong addict.
Not too bad, if you look at the statistics right? Out of 17 years, 10 years were good for the stock market in the months of January. Some say Capricorn Effect, some say retail investors collected bonus hence got more money to invest etc blah blah blah.
Fund Managers Move Stocks Early In The Year
In my very own opinion, worth only a cup of coffee, I believe that fund managers – the biggest buyer of stocks – are the people pushing up stocks. Why leh? Very simple. When people like you and me start work for the year, we like new things and to start afresh. So when fund managers start the year, they want to “dress up” their portfolio by buying up stocks so that overall prices can move up. This usually happens after fund managers sell stocks towards the end of the previous year in order to raise funds for the New Year’s purchase.
Unless the start of the year is a carryover from the previous year when all stocks, bonds and commodities got hit very badly and look set to fall again in the New Year. Yucks!
10 Out Of 17 Is Worth A Punt!
When I say “worth a punt”, it is not asking you to start punting in everything under the sun; neither am I asking you to punt in the stock market. It simply means the odds are in favour of the stock market rising in January.
If we were to narrow down the statistics to just the last 10 years, then the chance is only 40-60 (not in favour of rally) because the onslaught of the financial crisis in 2008 hit the stock markets as early as 2007 and the months of January from 2008 to 2011 were negative. As a matter of fact, some of those corrections were rather huge and jaw-dropping.
For the past five years, the odds were 60 percent in favour of a rally in January – not uncommon considering most months of January were good for the stock market. From 2015 to 2017, the performances were mixed with 2015 registering a mere one percent gain. In 2016, the Straits Times Index (STI) fell some 9 percent within a month while 2017 – this year – was lifted by a “Donald Trump” rally.
What About 2018?
It is difficult to bet against a rally because the odds favour a rally. But it does not mean that every year will be the same; history may not repeat itself. Not all the time, at the very least.
Despite the US market continuing to surge to new highs, just like beer prices at some kopitiam, our very own STI is defying its US counterpart, choosing the lead from the China and Hong Kong stock markets. The Shanghai Composite has corrected quite a fair bit while Hong Kong followed suit. The STI, as usual, has chosen the negative path! Argh!
I see some support at around 3,350 to 3,380. This is quite a key level. As a matter of fact, a breach below 3,400 will not augur too well while breaching 3,350 will be rather disastrous in the short-term.
Take care, drink more coffee and Merry Xmas!