A remarkably resilient ASX 200 phenomenon

This is a quick reminder of how the ASX 200, or big caps, typically behave in the first few months of the year. This January, the market (in Australia!) did what it normally does - we got an early/to mid-January selloff. I push the market as a strong BUY every year from mid-December - but then in January - investors do one of two things... If you are a "trader" you take profits in a few stocks. Alternatively, you hold most of your positions for 4.5 months until the end of April.  The latter is always my preferred strategy. In this wire, I outline why. 

This is a quick reminder of how the ASX 200 - or big caps go in the first few months of the year. And with the ASX 200 down close to the January low on the 17th it looks like this interesting phenomenon, that starts from mid of January is on again.

This January the market (in Australia!) did what it normally does - i.e. we got an early / to mid-January selloff. It's worth being aware that we are in a strong period right now & you need to be aware of what can happen in the next 3.5 months.

I push the market as a strong BUY every year from mid-December - but then in January - you do one on two things...

If you are a "trader" you take profits in a few stocks. Or you hold most of your positions and don't sell in mid-January but instead - you hold them for 4.5 months until the end of April. 

The latter is always my preferred strategy - stay near fully invested but have some cash aside for one of the following scenarios:

  1. A January sell-off (as we saw - with world markets also whipping around 
  2. If that doesn't happen (well it has this year) - then still buying stocks (pre-reporting) that you think may have a good result or; buying a stock on the day it reports if it has a good result and closed "up on the day". My data indicates that this is a good buying point for the next 4 months.
So being net long the market going forward for the next 3.5 months - to the end of April - has been a winning strategy over the long term

What are the returns over this period?

Over the last 29 years, one of the best buying opportunities has been to buy during the selloff that the market has most January’s and holding for 3.5 months until the end of April.

This strategy has had a phenomenal winning success rate of 82%.

In the last 29 years, this approach has been up 24 times. The average rise over those 3.5 months has been a massive +5.75% (before 2020's shocking -17.2% drop - thanks to COVID - it had been running at an average rise of +6.57%).

And considering the average gain in "the ASX 200 each year (over 12 months)" since 1993 has been +6.56% - this is significant.

While the 24 times it was UP the return was a massive +7.8%.

Chart: ASX200 from Jan low to end of April since 1993

Selling at the April high – even better.

The moves from Jan low to the high in APRIL are even better – sometimes selling out before the end of April has seen returns of +7.4%.

This looks at buying in at January low and selling in April at high (whilst in reality no one gets the low and the high correct - what it shows the magnitude of the moves).

Chart: January Low to April High

The pattern holds true in down years

Even in the 8 down years in the last 29 since 1993 - this period did better than the yearly move.

Source: Coppo Report

EVERY year (BAR just 1 - last year 2020 where COVID stuffed it all up) all the others OUTPERFORMED significantly - and also by a massive margin vs where the market closed for that year.

So again it is just a reminder that the first 4 months of the year are safer times to be long (except last year!). 

If you are worried about the year then reducing net long positions at the end of April can be a very good strategy. 

Never miss an update

Enjoy this wire?

Hit the 'like' button to let us know. Stay up to date with my content by hitting the 'follow' button below and you'll be notified every time I post a wire.

Investment Theme
Here's 7 gems you missed over the holiday break
Livewire gives readers access to information and educational content provided by financial services professionals and companies ("Livewire Contributors"). Livewire does not operate under an Australian financial services licence and relies on the exemption available under section 911A(2)(eb) of the Corporations Act 2001 (Cth) in respect of any advice given. Any advice on this site is general in nature and does not take into consideration your objectives, financial situation or needs. Before making a decision please consider these and any relevant Product Disclosure Statement. Livewire has commercial relationships with some Livewire Contributors.

Richard Coppleson
Director of Institutional Sales and Trading
Bell Potter

Richard authors “The Coppo Report”, a highly regarded market newsletter. He has over 30 years’ experience in financial markets, beginning his career at Ord Minnett where he worked for 15 years, before moving to Goldman Sachs.

I would like to

Only to be used for sending genuine email enquiries to the Contributor. Livewire Markets Pty Ltd reserves its right to take any legal or other appropriate action in relation to misuse of this service.

Personal Information Collection Statement
Your personal information will be passed to the Contributor and/or its authorised service provider to assist the Contributor to contact you about your investment enquiry. They are required not to use your information for any other purpose. Our privacy policy explains how we store personal information and how you may access, correct or complain about the handling of personal information.


Please sign in to comment on this wire.

trending on livewire
Get the best of Livewire by signing up to our popular daily newsletter