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As January Goes, So Does the Market?
Old 01-04-2010, 08:09 PM   #1
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As January Goes, So Does the Market?

From USA Today:

Stocks start 2010 with big gains as Dow jumps 1.5% - USATODAY.com

"The last 37 times the broad U.S. stock market posted gains in the first five days of trading, it was followed by full-year gains 32 times, a success rate of almost 90%, says the Stock Trader's Almanac."
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Old 01-04-2010, 08:11 PM   #2
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Last year, the market rallied strongly the first few days of January, then nosedived until March. So?
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Old 01-04-2010, 08:42 PM   #3
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But look at how well the market did by year's end.

Okay, maybe January is too pre-mature to tell the direction of the market.

We can wait til Feb, after the Superbowl.

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Old 01-04-2010, 10:30 PM   #4
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The market was actually down last January. It was only up the first week of that month!

Just now, I see that the Asian markets are going up. Pretty good chance that the European markets will be up, then the US tomorrow. Let's hope it is not going to be a repeat of last year: a good start for one week, followed by despair and dismay.
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Old 01-04-2010, 10:39 PM   #5
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From Investopedia: January Effect

From Wikipedia: The January Effect is a calendar-related anomaly in the financial market where financial security prices increase in the month of January. This creates an opportunity for investors to buy stock for lower prices before January and sell them after their value increases. Therefore, the main characteristics of the January Effect are an increase in buying securities before the end of the year for a lower price, and selling them in January to generate profit from the price differences. This type of pattern in price behavior on the financial market supports the fact that financial markets are not fully efficient. The January Effect was first observed in the early 1980s by Donald Keim who, at the time, was a graduate student at the University of Chicago. It is the observed phenomenon that since 1925, small stocks have outperformed the broader market in the month of January, with most of the disparity occurring before the middle of the month. The most common theory explaining this phenomenon is that individual investors, who are income tax-sensitive and who disproportionately hold small stocks, sell stocks for tax reasons at year end (such as to claim a capital loss) and reinvest after the first of the year. The January effect does not always materialize; for example, small stocks underperformed large stocks in January 1982, 1987, 1989, 1990, and 2008.
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