Does a Faulty Barometer Herald a Storm for Stocks?

Should you fire your financial advisor and hire a month in order to optimize your asset allocation?

Probably so, if you believe proponents of a time-honored indicator of future stock market performance known as The January Barometer. The Barometer simply states that As goes January, so goes the year, and its racked up a seemingly remarkable forecasting record since well before Yale Hirsch of Stock Traders Almanac first popularized it as early as 1972.

Since 1938, the direction of change of the benchmark S&P in the first month out of the gate has matched the year as a whole more than a whopping 80% of the time, making January by far the most predictive month on the calendar. The results are similarly impressive if you use the Dow Jones Industrial Average (DJIA) as a yardstick and, although it somewhat diminishes the accuracy of the forecasting tool, if you assess efficacy over the next 11 or 12 months to avoid double-counting Januarys moves in the periods its supposed to foreshadow. Dating back to the inception of the NASDAQ Composite Index in 1971, January achieves the greatest success of any month in anticipating the movement of OTC stocks throughout...