Seasonal Trades '25-'26: The January Defect (Preview)

By Lawrence G. McMillan

Now that January is here, the first of two “classic” January indicators is in place.  That is the result of the first five trading days of January.  Here are the relevant prices to date:

Date $SPX Closing Price
12/31/25         6845.20
1/8/26 (5th trading day) 6921.46
1/14/26 (9th trading day) 6926.60
1/15/26 (10th trading day) 6944.47

No matter which one of those you use, the market is up for 5, 9, and 10 trading days to begin the new year.  Numerous statistics abound, but the general gist is that if the market is up over this period, then it is highly likely to be up from now through the end of the year.  Frankly, since we don’t trade year-long systems, this is more of a curiosity than a trading signal.

This was first identified by Yale Hirsch back in the 1960's.  His second, related indicator was how the market did over the course of the entire month of January (“The January Barometer”).  If both the “First Five Days” and the “January Barometer” are positive, there is a huge probability that the rest of the year will be positive.

Here is what the Hirsch Organization (now run by Jeff Hirsch, Yale’s son) has to say at this time.  Before reading note that Jeff’s “January Trifecta” is a) the Santa Claus Rally (which was slightly negative), b) the “First Five Days” (which was positive), and c) the “January Barometer” – the entire month of January.

“For the calculation for the First Five Days (FFD) Indicator, you take the close and the last trading before the first trading day of the year to the close on the fifth trading day of the year: from the 6,845.50 close on 12/31/2025 to the 6,921.46 close on 1/8/2025 S&P 500 was up 1.1% so the FFD was up this year. Using indicators like our January Trifecta is a bit of an art. Readings are not binary. It does not signal a bull or bear market has ended or begun. It’s a warning to use other analyses, wits and experience to adjust our outlook and portfolio positions if needed. 

Why is the Trifecta so important? Since 1950, when all three January Indicators, Santa Claus Rally (SCR), First Five Days and the full month January Barometer (JB) are up, S&P 500 is up 90.6% of the time 29 out of 32 years for an average gain of 17.7%. When one or more of the Trifecta are down the year is up only 61.4% of the time, 27 of 44, for a paltry average gain of 3.9%. 2022 was a perfect example. We did come into the year with a cautious outlook as it was a midterm year where many bear markets occur and bottom. The Santa Claus Rally was positive in January 2022, but FFD and JB were negative and we called the bear in February 2022 and the bottom in October 2022.” 

So, with the Santa Claus Rally already in the negative column, the outlook isn’t as bullish as in some years...