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Can Stocks Stage A Comeback After Worst Start To A Year Since 1930?

This article is more than 8 years old.

After the year began with five straight days of losses futures trading suggested markets could stage a modest comeback on day six. Within the first hour of trading gains had lowered -- to about  0.1% to 0.3% each for the S&P, Dow and Nasdaq -- but not entirely disappeared.  Will morning gains hold on or dissipate further as they did after a few hours of post jobs report excitement of Friday?

[Update 1: By midday all three indices had touched negative territory at least temporarily.]

[Update 2: The S&P 500 and Dow Jones Industrial Average both closed the day in the green while the tech heavy Nasdaq finished down 0.12%.]

^SPX data by YCharts

"First there was no Santa Claus Rally (SCR), and then December’s Closing Low of 17128.55 was violated on January 6 and now the First Five Days (FFD) early warning indicator has registered its worst reading on record going back to 1930," wrote Jeff Hirsch, editor of the Stock Trader's Almanac, in a post to the almanac blog Friday evening.

According to the almanac, the first five trading days of the year often provide clues to how the following 245 or so market days will pan out. Since 1930, the S&P 500 Index has been negative following one week of trading 28 times. Following those red weeks the full year was down 15 times, giving a slight edge to the notion that the race is determined in its opening minutes. (What usually happens on day six when the first five days are down? Hirsch says, not much and certainly nothing with a clear pattern.)

Correlation is somewhat higher in presidential election years, notes Hirsch, but lower in years when there was no late December rally and when the Dow crosses its December low this early in January. So really, no one knows what 2016 has in store.

What is clear? Last week's rout took big bites out of some popular names, particularly in tech. Of the so called FANG stocks -- Facebook , Amazon.com , Netflix and Google (now Alphabet) -- only Netflix finished the week in positive territory.

FB data by YCharts

None of these stocks, however, were hit as hard as Apple , which concluded the week down almost 8%. Add that to the iPhone maker's rough December and the stock is down more than 10% year-over-year. With Alphabet shares up more than 40% over the same period, the company formerly known as Google is in striking distance of overtaking Apple in market capitalization.  Regardless both companies will remain wildly valuable, but such a change in standing could surely merit a reevaluation of many market participants' long held assumptions.

AAPL Market Cap data by YCharts

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