The 2013 Toy Story

MrTopStep.com

Owing largely to previous students of seasonal tendencies such as Yale Hirsch and Arthur Merrill, astute traders have for several decades been cognizant of the intermediate implications arising from the market’s observed disposition at the ‘Turn of the Year’.  For the last half century, indicators such as the ‘January Barometer’, the ‘First Five Days of January’, and various ‘End of the Year’ holiday studies have served to document these tendencies.  

In March of 2012, in an effort to finally resolve, for my own satisfaction, which time period was the King Pin of seasonal barometers, I implored my computer to take a few seconds to exhaustively study S&P performance over every time period of the year and determine which time frame’s behavior was proprietor of the highest correlation coefficient relative to the following year’s performance.  My machine was kind enough to inform me there are many time periods which merit observance, and I am now the beneficiary of his daily capsulation of statistically significant time frames which are in play on any day of inquiry.   Of current interest, the time period which this endeavor found to have the highest correlation to the following year, was the 2 month period from November 19 to January 19.

Since this two month time period (Nov19-Jan19) extends across the Turn of the Year (TOY) and encompasses the gift giving season, I have coined it the ‘TOY Barometer’.  The TOY Barometer’s predictive ability benefits from the fact it’s setup period includes several subset time frames which have, in their own right, shown predictive capability; such as the Thanksgiving Holiday Week, the Christmas Holiday Week, the Last Week of the Year and the First Week of the Year.  The market’s response to fourth quarter earnings announcements beginning in the second week of January could contribute as well.  Also, many an investment methodology involves turn of the year contributions which may tip the market’s hand as to levels of money flow which may follow throughout the course of the year.

We booked a 2013 TOY of 7.14% today.  Since 1950, the S&P has finished positive in the following year (Jan19-Jan19) in 31 of those 32 years in which TOY performance exceeded 3%.  In the 1987 exception, the S&P was up 24% from January 19 through August 13, before succumbing to an assault on double digit interest rates during the fall of that, the year of our Black Monday.  The 32 previous +3% TOY cases are listed below for your viewing pleasure.


  ONE YEAR (JAN19-JAN19) S&P PERFORMANCE AFTER A 3% TOY

 #  YEAR     TOY%  NEXTYR%        #    YEAR    TOY%  NEXTYR%      #    YEAR    TOY%  NEXTYR%  
    1 1950  4.26  26.62     12 1971 13.09  10.79    23 1989  7.67  18.21
    2 1951  7.55  13.53     13 1972 13.39  14.34    24 1991  4.04  26.08
    3 1952  6.69   7.30     14 1975  4.05  36.70    25 1992 10.39   4.37
    4 1954  5.25  36.14     15 1976  9.27   5.62    26 1997  4.58  23.88
    5 1955  4.51  25.06     16 1979  5.64  11.35    27 1999  8.53  16.39
    6 1958  3.24  35.79     17 1980  6.56  21.34    28 2004  9.34   3.92
    7 1959  4.66   2.86     18 1983  6.02  14.99    29 2009  5.40  33.63
    8 1961  7.08  15.02     19 1985  5.05  21.66    30 2010  5.05  11.45
    9 1963  8.96  17.46     20 1986  4.91  27.76    31 2011  6.85   2.54
   10 1964  6.48  12.60     21 1987 13.33  -7.43    32 2012  8.13  13.05
   11 1967  5.61  10.98     22 1988  3.86  15.08    33 2013  7.14    ?

NEXT YEAR  #UP-DN= 31-1               AVG%CHG=16.53               MED%CHG=15.01

Toying Around Bear Markets

I would not have likely stumbled across the TOY Barometer without the much appreciated prior published work of my esteemed predecessors in the area of seasonal indicators, but after nine months of sporadically reviewing it’s 62 year forecasting record, I have come to the conclusion that, indebted to the design specifications from hence it originated, TOY is the most accurate of indicators of the seasonal genre.   Probably, attributable to the fact TOY’s simplicity masked the utility of its message, it took me nearly a year to appreciate that few seasonal barometers exhibit TOY type forecasting accuracy on both sides of the ball.  Below is the post 1949 TOY record for three different levels of TOY measures.  

S&P One Year Performance vs TOY Measure

              TOY Level         Interpretation      #Up-Dn       Pctup         Avg%chg     Med%chg
              .  Greater than 3%            Bullish                      31-1             96.88               16.53                 15.01        .     
              .            0 – 3%                       Neutral                     11-7             61.11                 5.86                    5.75        .
              .     Less than 0%                Bearish                       4-9              30.77                -7.28                  -7.93        .


Interestingly, there have been three 50% Bear Markets since 1950, ranging from 16 to 31 months. In no case, did a +3% Toy occur in the year preceding those three Bear markets, and negative TOYs appeared in advance of the turbulent second half conclusions of all three.

Toy Performance in 50% Bear Markets

  Bear Market Time Frame      SP%Chg     First Yr TOY       2nd Yr TOY      3rd Yr TOY
01/11/1973 – 10/03/1974        -48.15        1973=2.85        1974=-5.11              N/A
03/24/2000 – 10/09/2002        -49.14        2000=2.38        2001=-1.84      2002=-2.04
11/19/2007 – 03/09/2009        -56.68        2007=2.09        2008 =-7.54             N/A

Of present interest, since the bottom was put in place in March of 2009, we have had five (2009-2013) consecutive +3% TOYs, which is in stark contrast to the one +3% TOY (2004) experienced over the preceding nine years (2000-2008), which you may recall was not one of the grandeur periods of equity ownership.   The 2013 TOY of 7.14% also falls in the Goldilocks TOY range of 3-9%, whose VIP membership includes the entries listed below.   


One Year S&P Performance after 3-9% TOYs

#  YEAR TOY% NXTYR%         #   YEAR TOY% NXTYR%       #    YEAR TOY% NXTYR%        #   YEAR  TOY% NXTYR%
1 1958 3.24 35.79     8 1959 4.66  2.86    15 1979 5.64 11.35    22 2013 7.14   ?
2 1988 3.86 15.08     9 1986 4.91 27.76    16 1983 6.02 14.99    23 1951 7.55 13.53             3 1991 4.04 26.08    10 2010 5.05 11.45    17 1964 6.48 12.60    24 1989 7.67 18.21           
4 1975 4.05 36.70    11 1985 5.05 21.66    18 1980 6.56 21.34    25 2012 8.13 13.05
5 1950 4.26 26.62    12 1954 5.25 36.14    19 1952 6.69  7.30    26 1999 8.53 16.39
6 1955 4.51 25.06    13 2009 5.40 33.63    20 2011 6.85  2.54    27 1963 8.96 17.46
7 1997 4.58 23.88    14 1967 5.61 10.98    21 1961 7.08 15.02     

NEXT YEAR  # UP-DN = 26-0            AVG%CHG = 19.13             MED%CHG = 16.92

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