Why the S&P 500 now has an 83% probability of rising over 2023 as a whole

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The S&P 500 rose during 2023’s first five trading days despite Monday’s slight loss, meaning Wall Street’s “First Five Days” indicator came in positive – giving the blue chips 83% historical odds of gaining for the year as a whole.

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Although the S&P 500 (SP500)(NYSEARCA:SPY) fell 0.08% Monday to close at 3,892.09, the index ended the day 1.4% above 2022’s final close of 3,839.5 five market days ago on Dec. 30. That means the First Five Days indicator came in bullish for 2023.

Editor Jeffrey Hirsch of the Stock Trader’s Almanac, which tracks the indicator, told Seeking Alpha that the positive reading means that “however you find your long positions, you can become less bearish. There are a lot of bears out there and it’s pretty grim, but I think [the indicator’s positive reading] helps you become less bearish − or at least less cautious.”

Stock Trader’s Almanac figures show that since 1950, the S&P 500 (SP500)(SPY) rose for the year as a whole in 39 of the 47 years when the First Five Days indicator came in positive.

In other words, a good showing in the market’s first five trading days gives the S&P 500 (SP500)(SPY) an 83% historical probability of rising  for the year as a whole.

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Jeffrey Hirsch (courtesy photo)

Hirsch added that in the 39 years when the First Five Days indicator correctly predicted good times ahead, the S&P 500 (SP500)(SPY) rose 14% on average for the 12-month period as a whole.

Going for a Trifecta

This year’s positive First Five Days indicator represents a second win for what the Stock Trader’s Almanac calls the “January Indicator Trifecta.”

That’s a set of early predictors – the First Five Days indicator, the Santa Claus Rally and the so-called “January Barometer” – that give the S&P 500 (SP500)(SPY) a 90.3% historical chance of a positive year when all three come in bullish.

The Santa Claus Rally, first described by Hirsch’s late father Yale Hirsch in 1972, measures whether the S&P 500 (SP500)(SPY) rises during the outgoing year’s last five trading days and the newly begun year’s first two sessions.

Yale Hirsch found that the market historically rises during those seven days, and a failure to do so often points to bad times ahead. As the elder Hirsch famously quipped: “If Santa Claus should fail to call, bears may come to Broad and Wall.”

This holiday season, the S&P 500 (SP500)(SPY) enjoyed a 0.8% Santa Claus Rally, followed by a positive First Five Days indicator as of Monday’s close.

All the S&P 500 needs now to score a January Trifecta is to see a positive January Barometer. That’s where the S&P 500 (SP500)(SPY) rises during January as a whole from its December close.

A Jan. 31 close above the S&P 500’s Dec. 30 finish of 3,839.5 will represent a positive January Barometer for 2023, as well as a win for the January Indicator Trifecta as a whole.

Jeffrey Hirsch told Seeking Alpha that Monday’s bullish reading for the First Five Days indicator “makes our trifeca two for two.”

All in, Hirsch’s current base case calls for the S&P 500 (SP500)(SPY) to rise 10% to 15% this year. He gives that prediction a 65% probability of happening.

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