From Stock Traders Almamac

Despite all the jockeying for position in Washington, Senatorial retirements, griping on heath care and financial reform, lax intelligence, terrorism and signs of slowing in the economic recovery, the stock market has opened the year on a positive note. Following the late-breaking, solid Santa Claus Rally, January’s First Five Days have also turned in an encouraging positive performance with the S&P 500 up 2.7%. This is the best first week of the year since 2006.

The last 36 up First Five Days were followed by full-year gains 31 times for an 86.1% accuracy ratio and a 13.7% average gain in all 36 years. However, in Midterm Years like 2010 the First Five Days has a dubious record. The S&P 500 posted a gain for January’s First Five Days in 9 of the last 15 Midterm Years. Only five followed suit. (2010 Stock Trader’s Almanac, page 14).

The return of seasonal bullish market action is encouraging. This up First Five Days reinforces our belief that the current bull market still has some legs and lends support to our 2010 Annual Forecast in the recent January 2010 issue for further gains before any sizeable pullback later in 2010.

But remember Midterm years are notorious for sharp corrections and juicy buying opportunities and the machinations already brewing in the political arena suggest 2010 is as vulnerable as any Midterm year and perhaps more so, considering the trajectory of the rally so far, the political capital at stake and the still precarious position of the recovery and regular guy on the street.

The final arbiter of these yearend/New Year indicators is of course the January Barometer at month-end. The December Low Indicator (2010 STA, page 40) should also be watched with the line in the sand the Dow’s December Closing Low of 10285.97 on 12/8/09. In other good news, the January Effect (2010 STA, page 104 & 106) of small caps outperforming big caps is already underway, with the Russell 2000 outperforming the Russell 1000 by nearly 2-to-1 since December 15.