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The December Low Indicator: 10,717.50

Monday, January 23, 2006 | 06:03 AM

Dow Jones Industrial Average: December 2005
click for larger chart

When the Dow closes below its December closing low in the first quarter, it is an excellent techncial warning sign. The lowest actual closing price for the Dow Jones industrials in December was made on the very last trading day of the year -- 12/30/2005 at 10,717.50.

Closing price on Friday? 10,667.39

What's that mean for the market? Consider what the December low has meant in the past:

"The December Low Indicator was originated by Lucien Hooper, a Forbes columnist and Wall Street analyst back in the 1970s.

Hooper dismissed the importance of January and January’s first week as reliable indicators. He noted that the trend could be random or even manipulated during a holiday- shortened week. Instead, said Hooper, “Pay much more attention to the December low. If that low is violated during the first quarter of the New Year, watch out.”

The December low not being violated improves upon the January Barometer. If the December low is not crossed, than according to the stock trader's almanac, the January Barometer becomes virtually perfect, right nearly 100% of these times.”

-Stock Trader’s Almanac

In the past, when the December low has been violated in the past, at some point, markets have been down later that year every single time but one. The average drop is about 10.7%, but its been as small as 0.3%, and as large as 25.1%.

click for larger table

via Stock Trader's Almanac