Sunday, December 21, 2008

The January effect: Lets discuss about the 2009 January effect

It is believed that in January, particularly during the first few week(s) has witnessed gains not seen during other months of the year. According to Wikipedia link for the January effect it is said that this may happen due to profit gains taken in the prior
year for tax purposes and investors put their money back in the market for re-investment.
To see if this really worked lets take a look at the past few years return for the NASDAQ index QQQQ.
In Jan 2008 we saw that QQQQ went down few percentage points. 2006, 2007 saw a modest gain , whereas 2005 saw some decline. 2004, 2003, 2001 and 2000 had some gains
whereas 2002 had a loss.

This result was based on the NASDAQ index. One might need to take into consideration other indexs or stocks (NYSE for example) particularly.
AS per this article it is said that small caps have had some
noticeable returns in January.
However one needs to be extremely cautious to trade small caps such many of them are not doing perform very well.

On the contrary if one could wait till January to sell the stocks the losses could be minimized. This is just another view of the same idea.

Other theories behind the January stock rise state that a lot of people might be getting some year end bonuses or some wait till the new year to start afresh. Cash strapped investors are seen selling just before big holidays -eg. Christmas to raise cash for gifts.

We will analyze the market towards the end of January 2009 .

What will happen in 2009? Will it show a January effect or have we seen a December effect already seen we are in the oversold region already? Please share your thoughts.


jj-momscashblog said...

Hi Tapan, Interesting post I must admit the stock market has always intrigued me as far back as I can remember my Grandfather had always invested in the stock market. He had given all of his grandchildren different stocks, so I guess it was always in our blood. I presently have 3 fairly good ones (until recently) with one being IBM and right now it doesn't look so good, not sure what I want to do with it. I might just keep it and forget about it for awhile, and hope everything will rectify itself. And suggestions? Have a great Holiday and a wonderful New Year!!