Explanation about "Anomaly of March"
Hello, this is Shimon.
Due to the Ukraine crisis
the Nikkei average is also affected,
but what will the future developments look like?
Initially, the 16th last week was considered the "X Day,"
and tensions were high,
but on that day, it seems nothing happened and we could pass peacefully.
However, the situation remains far from being predictable.
It can be said that the situation continues to be uncertain.
With disagreements between the United States and Russia
and the market being swung around,
the focus is shifting toward possible upcoming meetings
between U.S. President Biden and
Russian President Putin,
the US-Russia summit.
The U.S. side conditions that Russia must not invade Ukraine,
but
Russia has repeatedly denied plans to invade Ukraine,
and claims from the Western side are dismissed as propaganda and
"hysteria"
in reports, making the truth hard to discern.
Recently in this newsletter we discussed
the topic of an "Anomaly."
Anomaly is defined as
"market movements or phenomena that cannot be explained by theory."
Although difficult to explain theoretically,
by this time of year
certain patterns tend to recur
as a rule of thumb based on experience.
One particularly effective anomaly is
the "January Effect."
This suggests that market movements in January
decide the market direction for the entire year.
In the stock market,
if January is down,
the year tends to be weak,
if January is up,
the year tends to be strong.
This is the conclusion one can draw.
In particular, if January’s stock market declines,
wars or natural disasters are said to occur,
and this Ukraine crisis
would be a case where
this anomaly appears to have been fulfilled.
Also, a market adage for this period is
"Setsubun top, Higan bottom."
This means stock prices peak around early February (Setsubun) and bottom around mid-Higan in March.
In 2022,
prices had fallen from early January,
but rebounded from late January,
and indeed topped around Setsubun as the anomaly predicted.
So this time we will discuss the stock market's
“March Anomaly.”
Explanation follows.
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March Anomaly
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Anomaly is also called in Japanese
“market proverb.”
As for March Anomaly,
as mentioned above
the proverb is
“Higan bottom.”
This anomaly can be applied especially to
the Japanese stock market.
Theoretical background is that,
in Japan, many companies finalize accounts in March
and near the end of March, for rights and eligibility trading,
there is much buying and selling for dividends and benefits.
Also, since large financial institutions are at their fiscal year-end,
there is a likelihood of the return or covering of short positions
as well.
Therefore, March 15 is described as
a date when the Nikkei tends to rise, a
“special day.”
Considering current fundamentals,
it is prudent to watch for declines toward the “Higan bottom,” but
what trends might follow in stock prices?
Next, we will explain the anomaly for April and beyond.
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April High, Koi Nobori Top
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As for April, the proverb is
“April high, carp streamer top.”
This means that after the Higan bottom, prices rise in April and reach a new top around early May during the festival season.
This anomaly has theoretical backing,
and when the fiscal year changes and new funds flow in
toward early May, the market tends to rise.
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Summary
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In 2022,
the market was in a downtrend amid expectations of U.S. rate hikes,
and recently the Ukraine crisis added to the tensions between the U.S. and Russia.
Many investors are pessimistic about this point.
If the anomaly continues to unfold after March,
April to May could be an excellent time to accumulate.
Relying absolutely on anomalies for trading can lead to failures,
but keeping the anomaly in mind can be a helpful reference for investment decisions.
There are many important fundamentals in March, such as the U.S. policy rate hike expectations and Ukraine crisis developments,
but by checking news thoroughly and asking yourself
“How does the market react?”
when similar situations arise again,
you can infer what might happen based on past cases,
and this can help you develop a framework for judgment.
However, even with anomalies
or with the outcomes of news,
there is no case where it will move 100% as predicted.
This newsletter will continue to cover current events and their impact on the stock market,
analyzing how the market might react and the potential implications.
But the most important thing is
funds management that can withstand being wrong.
Learning how to respond when predictions fail
is the key to success as an investor.
Thank you for reading to the end today as well.
Shimo Yama Keizo
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