INCLINE VILLAGE, Nev. — The market began this year exceptionally strong, rallying 1.4% in the first five trading days of the year. That's important according to legendary analyst Yale Hirsch, who popularized the phrase, “As January goes so goes the year.” He found that activity in the first five trading days is a good predictor for what will happen the rest of the year. Let me explain.

Since 1937 there have been 48 years that have seen the Dow advance in the first five trading days of the year. Of those, 37 continued to advance the remainder of the year with an average gain of 8.0%. The maximum gain was 43% in 1954 and the maximum loss was 28% in 1974.

Looking at the data more closely, Jay Kaeppel, author of Seasonal Stock Market Trends, found that the size of the gains during the first five trading days of the year matter. Specifically, if the Dow gained more than 3% during the first five days then it advanced an average of 15.4% the remainder of the year. If the Dow gained more than 2.2% then the average gain the rest of the year was 12.5%. If the Dow gained more than 1.5% then the average gain the rest of the year was 10.4%. Finally, if the Dow advanced but gained less that 1.5% during the first five trading days, then the average gain was 5.3%.

So what does this mean for 2012? Since the Dow advanced 1.4% during the first five trading days of the year, there is a 68% probability that the market will continue to advance through the remainder of the year. Using data dating back to 1937, the market should continue to gain about 5.3% by the end of the year.

Of course this is where I should say that past performance does not guarantee future results. Nevertheless, after last year's flat market we'll take any good news that we can get!

— David Vomund is an Incline Village-based fee-only Registered Investment Adviser. Information is found at www.ETFportfolios.net or by calling 775-832-8555. Past performance does not guarantee future results. Consult your financial advisor before purchasing any security.