- We have tabulated the performance of the STI index over the last 21 years to test the common belief of whether January is a good predictor of the market’s performance for the rest of the year.
- Based on our findings, we see there is some truth in it as over 71% of the time, the stock market would take its direction from how it did in January.
- There were only six instances when it did not and those years were in 1990, 1995, 1996, 2001, 2002 and 2003.
- Meanwhile we also found that the longest stretch of a bearish market does not exceed three years and the market typically makes a strong rebound in the subsequent year.
- The strongest rebound was recorded in 1999 of 78%, just after the Asian Financial crisis where the market tumbled 38.6% between 1996 and 1998.
- Although the STI went into a tailspin for the next three years after 1999, dropping some 46% (due to the bursting of the Internet Bubble and SARS), the index subsequently took off on a 5-year rally.
- While the historical precedent points towards more downside for the STI this year, the market may not see a very sharp drop as it has already tumbled by nearly 50% last year.
- This also ties in with our technical view where we do see medium-term downside risk for the market but we also expect the index to find relatively strong support at 1474 (16% downside from January’s close).
- Our near-term resistance remains at 1776 (Bollinger Band centre line and 30-day moving average), ahead of 2048 (23.6% Fibonacci retracement of fall from Oct 2007 high to Oct 2008 low).
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