Monday, February 1, 2010

December Low Indicator...Remain Cautious

When the Dow closes below its December closing low in the first quarter, it is frequently an excellent warning sign. The December Low Indicator was originated by Lucien Hooper, a Forbes columnist and Wall Street analyst back in the 1970s. Hooper dismissed the importance of January and January's first week as reliable indicators. He noted that the trend could be random or even manipulated during a holiday-shortened week. Instead, said Hooper, “Pay much more attention to the December low. If that low is violated during the first quarter of the New Year, watch out!”

16 of the 30 occurrences were followed by gains for the rest of the year after the low for the year was reached. Hooper’s “Watch Out” warning was absolutely correct. All but one of the instances since 1952 experienced further declines, as the Dow fell an additional 10.9% on average when December's low was breached in Q1. Only three significant drops occurred when December’s low was not breached in Q1 (1974, 1981, and 1987).
Click to see charts

The Value Line Arithmetic Index ($VLE) shows how the small/mid cap indexes have so far held up...lets see what the next 2 months bring!

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