Friday, April 13, 2007

Stock Market Superstitions

Are you the superstitious type? Did you awaken with a sense of foreboding this Friday the 13th? Some regard travelers along Wall Street as superstitious. Take for example, the oft repeated saws “Sell in May and go away,” or “Beware the blue chips ‘n’ dips.” Neither really qualifies as a superstition, but both demonstrate the quirky nature of investors.

My favorite is the Superbowl Indicator, which holds that a win by an American Football League team foretells a bear market and a win by a National Football Conference team means a bull market. The Superbowl Indicator has actually been an accurate predictor over 80% of the time.

This makes the Indianapolis Colts win over the Chicago Bears in Superbowl XLI especially sweet for investors with a long-bias in their portfolios.

An even better indicator is the January Barometer, which has been accurate more than 90% of the time. This “superstition” says that January performance is an indicator for the balance of the year.

Now the S&P 500 was up 1.4% at the end of January 2007 versus a month earlier. The Nasdaq Composite Index fared better, increasing 2% in the first month after the New Year. The Wilshire 5000 Composite Index was also up 1.6% in January 2007, giving us some extra comfort for the small cap sector.

With football and the calendar leading the bulls in 2007, why worry about one bad luck Friday?

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