Forecast of RTS and MICEX indices in a new way. January barometers in 2017
There is a tradition in Russia of celebrating the new year in a boisterous and grand manner. Helping to spill over into Old New Year, February 14 and 23, and March 8. Because of this, several months become a time of gifts and congratulations... Endless gifts and congratulations. Well, maybe that's not a bad thing, right?
It's nice to give gifts!
To support the tradition, and to the publication, with which we are united by a long-standing friendship, I will also make a small gift. The best gift, as you know, is the one that you make with your own hands. But it is especially charming if it is also original.
As an analyst, I could just give you a forecast for the year, but it is trivial. I'll make an unusual, though partly traditional, January survey.
Remember, what we are in the home is what we will be in the marketplace. Therefore, all our household superstitions, peculiarities, and desires spill over into the marketplace. Now is the time when it's in the air, how you celebrate New Year's Eve, and how you will spend it! And everyone is trying to be closer to family and loved ones. The market, too, hears this saying, and hears it - how you celebrate New Year's Eve...
Although, to be fair, it should be noted that it is not a Russian tradition to look closely at stock market trends in January. It came to us from developed markets. There is even a special indicator of the year, the "January Barometer. You can read about it in detail in the book "Encyclopedia of Technical Indicators" by Robert Colby, and he, in his turn, uses the data of the almanac www.stocktradersalmanac.com by Yale Hirsch.
January barometer in a new way
[info_block align=»right»]Падающий январь, как отмечают адепты теории – ненадежная часть индикатора. [/info_block]
The essence of the "January Barometer" is simple - by the closing of January in the stock market they judge the closing of the next year. There are many caveats to such studies, and the most important one is that the "January Barometer" is only effective in conjunction with other indicators. Nevertheless, I calculate such "stuff" for my clients on a regular basis. For, in my opinion, such calculations save me from trading on "babka rumors.
If you read my review of last year's January Barometer, I have some surprises for you. First, I changed the way I presented the data (the form of the tables). Second, this year I decided to look at more than just RTS Indexbut also the MICEX index. And, of course, in addition to the standard representation of the indicator, which you will find in R. Colby, I have made some specific conclusions for our, albeit small, but market history.
I also added a study of the leading indicator "First Five Days of January," which is used to judge the likelihood of a positive or negative close for the entire month, and thus for the year.
January Trends in the RTS Index
So here we go, starting with the RTS Index. Let us examine the trends of the January indicators from 1996 to 2016.
Before us is Table 1, it shows the data for the indicator "First Five Days of January". Our market history is short, but for ease of reading I will express the triggering of this leading indicator in percentage terms. The positive close of the first five days of January was followed by a positive close of both January and the year in 73.3% cases, and a negative close only in 26.6% cases. The loss-making first five days of January were always followed by a decline for the month, that is, in 100% cases, but the year-end close was 50/50.
Let's look at the dynamics of January and its impact on the year for the RTS Index from 1996 to 2016.
So, according to Table 2, the positive closing of January on the RTS index in 72.7% cases predicts a positive closing of the year, but in 27.3% cases after a positive January the year was closed with a loss. Falling January, as adherents of the theory note, is an unreliable part of the indicator. And in Russia, the negative closing of January on the RTS index in 40% cases heralded the negative closing of the year, but in 60% cases the year closed in the plus.
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В итоге мы получаем, что позитивное закрытие индикатора «Первые пять дней января» — достаточно надежный (если конечно можно так громко заявлять о нашей небольшой истории) предсказатель позитивного закрытия, как и января, так и года.
The negative closing of the first five days of January on the RTS Index worked perfectly as a harbinger of decline for the month's outcome. But judging the future closing of the year by the indicator "First Five Days of January" is not worthwhile.
Let's summarize the effect of the January closing on the RTS Index:
- A positive January on the RTS Index mostly carried a positive close to the year.
- But a negative January only slightly increases the chances of the "bears" at the end of the year.
Let me remind you again, the U.S. index researchers, have a special note that a negative January as an indicator of future declines is weak. In our case, the trend persists. No wonder - years of a bull market.
What January will show on the MICEX Index
So, according to Table 3, a positive close of January on the MICEX Index in 75% cases portends a positive close of the year, but in 25% cases after a positive January, the year was closed with a loss. A negative January close on the MICEX Index in 43% cases portended a negative close to the year, but in 57% cases the year closed in the positive.
According to Table 4, a positive January close for the MICEX Index in 84,62% cases predicts a positive close to the year, but in 16,67% cases after a positive January, the year closed with a loss. A falling January on the MICEX Index gives a 50/50 forecast for the year.
As a result, we see that the effect of the "First Five Days of January" and "January Barometer" indicators for the MICEX Index is about the same as for the RTS. When the indicators predict growth in the conditions of the global bull markets, it is not very interesting, but if they could predict fall! But, alas, they have a weakness for predicting declines. Only the "First Five Days of January Indicator" has shown itself quite good in this aspect, and only for a month.
So it turns out that our work is in vain?
Not at all! Now we will easily brush aside those who would "bug" the market and foretell it negative in the event of an unfavorable close in January. Plus, the data I researched in this review holds a tremendous amount of other useful information. For example, foreign researchers of the "January Barometer" are trying to improve this indicator by parsing its erroneous data, for example, on the basis of even or odd, leap or non-leap years. We still have a small history for this, but we are working for the future.
If you would like to do a more detailed study based on my data, write afanaseva@corp.finam.ru. I will send you the database for my calculations. It contains not only the MICEX and RTS indices, but also foreign indices and domestic blue chips.
Promised forecast for RTS and MICEX
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Nevertheless, I promised a kind of forecast, to set a vector. I will try to do it based on the results of our research and, as colleagues from foreign markets advise, diluting it with other methods of market analysis. At the time of writing the review, January 2017 was not closed, so for now let's talk about the closure of the five days of January.
For the RTS index, the year began with a five-day increase, but the result of this growth was a gain of less than 1%. This is a unique situation! The RTS index as a whole behaves uniquely at the beginning of January: it either rises by an average of 7.38% or falls by an average of 5.52%. The RTS index during the first five days of January rose by less than 1% only in 2003 and in 2005. For reference, January 2003 ended with a 3.19% decline in the RTS index and a 57.98% increase for the year, January 2005 ended with a 4.28% increase and a 83.29% increase for the year.
Growth of MICEX index for the first five days of the year was about 0.25%. The indicator value is positive, but the value of less than 1% occurred only once - in 2003 - and ended with a loss of the month of 3.49%, and a plus for the year of 59.91%.
What does this tell you? That the remaining days of January are not worth relaxing. And it doesn't matter if the indices will close on the upside or the downside, just that there will be few good profitable moves until the end of the month, and the percentage change is unlikely to be serious. After the high-profile January holidays, are the clerks on Goa spreading out at reduced prices, taking the volatility out of the market? But overall we should look at the year with positive expectations. And according to the classical technical analysis, which I practice as a real criterion of trade decision making, we have a right to wait for the growth as long as RTS index is above 1000 points (uptrend of 2016) and MICEX index does not give up the bar of 1600 points (uptrend of 2008-2009).
Yes, it will!