As goes January so goes the Market. By Nick Godt(MarketWatch)

I was reading MarketWatch articles and this one in particular caught my eye.

NEW YORK (MarketWatch) -- The market is set for a 7% drop in January, not boding well for the rest of the year, if one believes the old adage.
According to the Stock Traders Almanac's January Barometer, the month of January tends to predict the direction of the market with a 91.4% accuracy ratio, with only five major errors recorded since 1950.
The barometer, created in 1972, is based on the performance of the broad S&P 500 index.
According to broader research from Quantitative Analysis Service, the month of January tends to predict the direction the market will take for the year accurately 65% to 75% of the times.
"That's not an impeccable record," says Ken Tower, market strategist and senior vice president at the firm. "But, along with April, it definitely has a better track record at predicting the year than any other month in the year."

$SPX) , used by most investing professionals as a gauge of the broader market, is currently on track for a 7.3% drop for January.

$INDU) is off 8% for the month. Since 1896, the Dow has gained an average 0.98% in the month of January, for an average yearly gain of 7.41%.
For this January, the Nasdaq Composite (COMP

COMP) is down 5.2%.
Voodoo 'Monthanomics'?
Some market strategists who rely on technical analysis use January's success at predicting market action, not because they believe in astrology, but simply because it's worked historically.
"There's not one set rational explanation for this," Tower says. "But there are special factors found in January. December marks the end of the tax year, which we've set arbitrarily. January can represent the new money committed in the new year."
In addition, at least in the U.S., November and December traditionally are marked by holiday spending, which investors can use to determine future spending patterns, therefore future profits and overall economic activity.
Based on this, market action made sense on Friday, with stocks stumbling for a second day on economic concerns.
The Dow recently fell 75 points, or 1%, to 8,073. The S&P 500 was down 8 points, or 1%, at 836, while the Nasdaq Composite was down 13 points, or 1%, at 1,494.
A survey by the University of Michigan and Reuters showed consumer confidence rose in January, but not as much as expected. And consumer-products maker Procter & Gamble (PG) slumped 5% after warning its sales were slowing.

January in history

There are key historical factors that have made January hold so much sway over the market's yearly performance, according to Jeffrey Hirsch, the editor of the Stock Traders Almanac.
Back in 1933, the U.S. Constitution was amended and moved Inauguration Day from March 4 to Jan. 20. In addition, since 1934, new Congresses meet the first week of January instead December.
The market, in fact, has regained some ground over the past week, as the House of Representatives passed the Obama administration's $819 billion economic stimulus package.
The administration and lawmakers are also trying to come up with a plan to cure the financial system of the toxic assets that have brought the global economy to its knees over the past year and a half.
With January still being firmly down, the market might be sending the signal that any economic benefits from government action won't be felt until after the end of this year, says Tower of Quantitative Analysis Service.
"People thought the economy would start to recover in the second half of this year," Tower said. "But our forecasts is now for the economy to bottom at the end of the year, if not in early 2010."
The market, which tends to anticipate economic recoveries well ahead of time, could start to recover in the second half. But according to the January Baromoter, that won't be enough for stocks to end 2009 in positive ground.