Pelosi Curses DOW

"Only the rich benefit from these record highs. Working Americans, welfare recipients, the unemployed and minorities are not sharing in these obscene record highs. There is no question these windfall profits and income created by the Bush administration need to be taxed at 100% rate and those dollars redistributed to the poor and working class. Profits from the stock market do not reward the hard work of our working class who, by their hard work, are responsible for generating these corporate profits that create stock market profits for the rich. We in congress will need to address this issue to either tax these profits or to control the stock market to prevent this unearned income to flow to the rich." -- Nancy Pelosi, 2006

MARKET SNAPSHOT: As Goes January, So Goes The Year?

The market is set for an 8.6% drop in January, not boding well for the rest of the year, if one believes the old adage.

According to the Stock Traders Almanac's January Barometer, the month of January tends to predict the direction of the market with a 91.4% accuracy ratio, with only five major errors recorded since 1950.

The barometer, created in 1972, is based on the performance of the broad S&P 500 index.

Based on broader research from Quantitative Analysis Service, the month of January works accurately at predicting market direction 65% to 75% of the time.

"That's not an impeccable record," said Ken Tower, market strategist and senior vice president at the firm. "But, along with April, it definitely has a better track record at predicting the year than any other month in the year."

The S&P 500 index (SPX), used by most investing professionals as a gauge of the broader market, is currently on track for a 8.6% drop for January.

The Dow Jones Industrial Average (DJI) is off nearly 9% for the month. Since 1896, the Dow has gained an average 0.98% in the month of January, for an average yearly gain of 7.41%.

For this January, the Nasdaq Composite (RIXF) is down 6.4%.

Voodoo 'Monthanomics'?

Some market strategists who rely on technical analysis use January's success at predicting market action, not because they believe in astrology, but simply because it's worked historically.

"There's not one set rational explanation for this," Tower said. "But there are special factors found in January. December marks the end of the tax year, which we've set arbitrarily. January can represent the new money committed in the new year."

In addition, at least in the U.S., November and December traditionally are marked by holiday spending, which investors can use to determine future spending patterns, therefore future profits and overall economic activity.

Based on this, market action made sense this month and on Friday, with stocks stumbling for a second day on economic concerns.

The Dow recently fell 134 points, or 1.6%, to 8,016. The S&P 500 was down 17 points, or 2%, at 827, while the Nasdaq Composite was down 26 points, or 1.8%, at 1,481.

A survey by the University of Michigan and Reuters showed consumer confidence rose in January, but not as much as expected. And consumer-products maker Procter & Gamble (PG) slumped more than 6% after warning its sales were slowing.

January in history

There are key historical factors that have made January hold so much sway over the market's yearly performance, according to Jeffrey Hirsch, the editor of the Stock Traders Almanac.

Back in 1933, the U.S. Constitution was amended and moved Inauguration Day from March 4 to Jan. 20. Since 1934, new Congresses meet the first week of January instead of December.

The market, in fact, has regained some ground over the past week, as the House of Representatives passed the Obama administration's $819 billion economic stimulus package.

The administration and lawmakers are also trying to come up with a plan to cure the financial system of the toxic assets that have brought the global economy to its knees over the past year and a half.

With January still being firmly down, the market might be sending the signal that any economic benefits from government action won't be felt until after the end of this year, says Tower of Quantitative Analysis Service.

"People thought the economy would start to recover in the second half of this year," Tower said. "But our forecasts is now for the economy to bottom at the end of the year, if not in early 2010."

The market, which tends to anticipate economic recoveries well ahead of time, could start to recover in the second half. But according to the January Baromoter, that won't be enough for stocks to end 2009 in positive ground.

That leaves a chance for some investors to turn to other ways to read the market tea leaves, such as the Super Bowl indicator. The belief is that should a team from the old American Football League win, the stock market will fall that year. Should the victory go to a team from the old National Football League, the market will rise.

"Yeah, we saw how well that worked last year, when the Giants (a team from the old NFL) won," said Paul Nolte, director of investments at Hinsdale Associates.

The Super Bowl will be held this Sunday.