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The NFL logo at midfield of MetLife Stadium is illuminated by lights on television reporters' videocameras as members of the media are given a tour under a tarp used by crews to keep the turf dry ahead of Super Bowl XLVIII, Wednesday, Jan. 15, 2014, in East Rutherford, N.J. (Julio Cortez/AP)
The NFL logo at midfield of MetLife Stadium is illuminated by lights on television reporters' videocameras as members of the media are given a tour under a tarp used by crews to keep the turf dry ahead of Super Bowl XLVIII, Wednesday, Jan. 15, 2014, in East Rutherford, N.J. (Julio Cortez/AP)

Equities

Pay little attention to these stock market myths Add to ...

Traders are cheering for a victory by the Seattle Seahawks over the Denver Broncos in the Super Bowl on February 2. The Seattle Seahawks are the National League champions. According to the Super Bowl indicator, the S&P 500 index will rise for the remainder of the year if the winning team is a National Football Conference (NFC) team. Conversely, the S&P 500 index will fall if the winning team is an American Football Conference (AFC) team. The indicator has been successful in 28 of the past 47 Super Bowls for a success rate of 60 per cent. Average gain for the S&P 500 index through the remainder of the year following an NFC win is 10.5 per cent versus the average gain of 4.3 per cent for an AFC win.

Perhaps the better probability is the tendency for losses during the Monday following the big game. The S&P 500 has declined 61.7 per cent of the time the day after Super Bowl Sunday for an average loss of 0.1 per cent. Surveys have shown that employees are more likely to waste time or call in sick on the Monday following the Super Bowl than any other day.

The Super Bowl indicator is one of many indicators and myths that are fun to discuss, but have absolutely no predictive value. All may have a high correlation with the S&P 500 index, but they do not have a “cause and effect” relationship based on significant annual recurring events.

Academic research has discovered several other indicators that show a strong positive correlation with the S&P 500 index. The indicator, that had the highest correlation, is butter production in Bangladesh. Other indicators with a strong positive correlation include ice cream production and airline travel.

Other indicators that frequent U.S. equity markets at this time of year are the “First five trading days in January” indicator and the “Month of January” indicator.  Both indicators suggest that a gain by the S&P 500 index during these periods will lead to higher markets for the rest of the year. Conversely, a decline in the S&P 500 index during these periods will lead to weaker markets for the rest of the year.  Both indicators currently are predicting weak markets for the remainder of 2014. The “Month of January” indicator has been successful 71.9 per cent of the time since 1950, however, the success rate is only 46 per cent when January produces a loss for the month.  Both indicators are useless because they are not related to causal annual recurring events.

The Mid-term U.S. Presidential Election cycle indicator has at least some validity. A series of “cause and effect” events occur each mid-term election year that impact equity markets. History shows that the S&P 500 index and the Dow Jones industrial average on average move lower in the month of January, struggle in February, move higher into mid-April, move lower until the end of September and move higher until the end of the year to close at a high for the year. Events, that influence these trends, include the politically divisive State of the Union address in late January, the start of political rhetoric in April as the election battles begin and political and economic uncertainty escalates, followed by a return to hope by October that the next Congress will be more effective than the previous Congress. This year, the mid-term election is held on Tuesday Nov. 4. So far, the Mid-term U.S. Presidential Election cycle indicator is tracking its historic trend.

Don and Jon Vialoux are the authors of free daily reports on equity markets, sectors, commodities and Exchange Traded Funds. They are also research analysts at Horizons Investment Management, offering research for the Horizons Seasonal Rotation ETF (HAC-T). All of the views expressed herein are their personal views, although they may be reflected in positions or transactions in the various funds managed by Horizons Investment. Horizons Investment is the investment manager for the Horizons family of ETFs. Daily reports are available at http://TimingTheMarket.ca/ and http://EquityClock.com.

Follow us on Twitter: @GlobeInvestor

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