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Stocks Rally In January and February: Powerful Full-Year Indicator

Steve Hix | Corbis | Getty Images

Disappointed we didn't hit an historic high in the Dow yet? Don't be. Something potentially more important has happened.

The Dow and S&P 500 are up in both January and February. That is quite a feat, especially since February is traditionally the weakest month of the "Best Six Month" strategy (buy from November to April, then get out).

So being up in January and February doesn't happen often, but when it does it's a great indicator for the rest of the year.

According to Sam Stovall at S&P CapitalIQ, there have been 26 times since 1945 the S&P 500 has been up in both January and February.

In an 26 instances, the S&P 500 was up for the full year. That's not too surprising, but more important is that the full year averaged returns of 24 percent, posting results that were in the single digits only two years of those 26: 1987 and 2011.

An average total return of 24 percent, including yield. That is a powerful move.

Stovall notes: "The reason for this full-year early warning signal, in my opinion, is that investors - like an octogenarian willing to skip a nap - believe there may be too much to miss should they take their traditional seasonal siesta."

And what about that Dow hitting a new high? It will. Tomorrow is a good day to shoot for it: 1) start of the month usually brings in new money, and 2) the February ISM comes in, our first read on the economy. If it's stronger than anticipated (52.5 is consensus), there's a good chance we will get to new highs.

By CNBC's Bob Pisani

  • Bob Pisani

    A CNBC reporter since 1990, Bob Pisani covers Wall Street from the floor of the New York Stock Exchange.

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