Experts Predict Positive 2011 Stock Market Based on January Values

January is often used to predict how the stock market will move for the rest of the year–and according to market forecasters, 2011 is looking good. As recently reported by USA Today, based on this month’s indicator numbers, stocks are on the right track. If they continue as they are, we could see increases by the year’s end.

The “Early Warning Signal” Boosts Confidence for 2011

According to the Stock Trader’s Almanac 2011, the stocks in January are such a good predictor of the rest of the year that they are used in what is dubbed the January Barometer. If stocks rise in January, the market will usually be up at the year’s end. If they’re low, the market will usually end up low, too.

To be more specific, the Almanac views the performance of Standard & Poor’s 500 in the first five days of the year. This is known as the “early warning signal.”

Of the 38 times stocks have increased in the first five days of the year, they have finished up 33 times. This 87-percent success rate leaves forecasters feeling fairly confident that those wanting to make investments should look at the “early warning signal” to determine the fate of their stocks for the year.

For 2011, the S&P 500 rose 1.1 percent in the first five days. This means, according to the January Barometer, the market just may be on the right track for the rest of the year.

What Could Change the Positive Outlook for 2011

While the first five days of January typically have a good success rate for predictions, there are some things that could change the tone throughout the year, including:

• Fluctuating interest rates
• Economic growth or decline
• Investor psychology (bullish or bearish market trends)

The fact investors are feeling bullish (positive) about stocks could mean most people are willing to buy in and therefore, push stock prices up and leaving little room for others to buy in. Also, if interest rates in other areas begin to increase, people could feel less confident about their ability to invest.

Overall, the market looks to be on the right track, which is why experts say this is a good time to get in on the action. With stocks expected to jump 10 percent or more in 2011, this could indeed be a great year for  investors.