The Chinese zodiac may have played a role in investors' good fortune last year, but if so, you may not want to hear what the calendar predicts this year. In any event, MoneyShow's Tom Aspray explains why at least in the short term, not chasing this rally might be the prudent choice.
The stock market was choppy for most of last week, but then turned higher Friday in a more convincing fashion. The strong close does favor another push to the upside this week.
As I discussed at the end of last month, the stock market has a seasonal tendency to correct in February, and the sharp gains so far in 2013 make this a distinct possibility. The technical action remains positive and shows no signs yet of a top, but this could change in the next two weeks.
Sunday is the beginning of the Chinese New Year. This is the year of the “Black Water Snake,” and runs through January 31, 2014.
I just received the annual copy from CLSA Asia-Pacific Markets of their CLSA Feng Shui Index(CLSA FSI). This is their “tongue-in-cheek look at what’s in store for the Hang Seng key market sectors” for the coming year. As the cover suggests, it is geared more toward the Hang Seng and Chinese investors...it is quite detailed, but does has some interesting information.
It does mention that those who were born in the year of the Rooster, Dog, and Cow will have the best year. Those of us who were born in the year of the Pig, Tiger, Snake, or Sheep will not be as happy. (To find your Chinese Zodiac sign, please click here.)
In my column last year, Year of Dragon Is Bullish for Stocks, I noted that the “since 1952, there have been four other Dragon years as part of the 12-year cycle. The average for the five years is a gain of 5.8% using the Dow Industrials before 1980 and the S&P 500 in later years.”
With an average Dragon-year gain of 5.8% in 2012, it “would mean that the S&P 500 would close on February 9, 2013 at 1391.57.” So clearly, the last Dragon year was better than average. The last three Snake years have been 2001, 1989, and 1977.
In my discussion of the January barometer, I noted that 2001 was an ugly year for the stock market. On a year-to-year basis, the S&P 500 was down 13.1%, and at one point was down almost 28% for the year.
The chart of 1989 does look much better, as the S&P was up over 27% for the year. However, for the Chinese year period it was not nearly as good—it began the Chinese year at 296.9 and ended it at 325.8, for just a 9.7% gain. There were some definite sharp drops along the way, including the 6.1% drop on October 13, 1989.
Using the Dow Industrials in 1977, it was pretty grim no matter whether you look at the calendar year or the start and end of the Chinese year. For the calendar year, the Dow was down 16.8%, and for Chinese year it lost 17.5%.
NEXT: What Does This Mean for 2013?