First Week of January: Is It an Omen?

Readers have been clamoring to know what happens after the first trading week of the year. If the week is up, does this portend a successful year?

Just a quick glance at the graph below seems to suggest a relationship…

1stWk.Return = Close of last trading day of year to close of 5th trading day of next year.

ROY % Chg = Close of 5th trading day of year to close of last trading day of year (Rest of Year % Change).

Now, let’s look at a simple system with these rules: Buy the 5th close of the year and hold for the rest of the year if the 1st week of the year closes with gains. No commissions or slippage included.

Results:

All Trades = 38

Avg. Profit/Loss % = 12.01%

% of Winners = 78.95%

Compound Annual Growth Rate = 6.74%

Surprisingly good results…

So what happens if we buy after the first week is down?

Results:

All Trades = 23

Avg. Profit/Loss % = 2.42%

% of Winners = 52.17%

Compound Annual Growth Rate = 0.30%

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Summary:

Truthfully, I was surprised to see these results. Before I’d be willing to trust that there is truly an edge in this setup, I would want to run a test that cycles through 52 weeks at a time, buying after any up week and holding for another 51 weeks. I have a feeling that running such a test would show that this omen is only random luck. There are likely weeks that have consistently performed better over the past 60 years, but who knows for sure until the test is run?

Here is the code for the AmiBroker crowd:

//First Week of January
//woodshedder73 at gmail dot com
SetTradeDelays(0,0,0,0);
SetOption(“MaxOpenPositions”, 1 );
PositionSize = -100/1;
Mo=Month();
FirstDay=(Mo==1 AND Ref(Mo,-1)==12);
EODC = ValueWhen(Mo==12 AND Ref(Mo,1)==1,C); //EODC is End of December Close
EOFW = ValueWhen(BarsSince(FirstDay)==4,C);  // EOFW is End of First Week
FirstWeekRet = (EOFW-EODC)/EODC;
Buy = Mo==1 AND BarsSince(FirstDay)==4 AND FirstWeekRet<0;
Sell = IIf(DayOfYear() > Ref(DayOfYear(), 1), 1, 0);
Filter = Buy;
BuyPrice = Close;
SellPrice = Close;
//Report
AddColumn(Close, “Close”);
AddColumn(EODC, “EODC”);
AddColumn(EOFW, “EOFW”);
AddColumn(FirstWeekRet, “1stWeekReturn”, 1.4);
AddColumn(BuyPrice, “BuyPrice”);

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