Is the tendency for smaller stocks to outperform larger stocks during January. Not to be confused with the January Barometer which according to Hirsch: "As January goes, so goes the year." I've seen some authors suggest that since everyone already knows about the January effect that it basically no longer exists. I don't know if this is true or not, but it makes sense. Everyone buys in December now to capitalize on January. They'll have to change the name...
I'll write about how I play the Dec/Jan effect shortly. Please be patient with me. Look for a thread in the new year. Until then...
I'll trade it based on other indicators. Might be good to play some money moving from retail stocks. Probably go long a couple of stocks bouncing off support. The January effect is also the result of money moving into institutions from 1st of year pension contributions.
It's true, most people expect the January effect and take positions ahead of it, essentially moving the stock ahead of January, leaving not much further movement to go. In the past few years, the January effect has actually taken place in December and November, cause the smarter money started taking the same positions in October and November, expecting people to buy in anticipation of January. Selling their shares in December and January. This year, we might actually get it, as alot of people have been scared to take any type of meaningful position going into the New Year, and the selloff so far in December has been mute.
I have often wondered about why so many things in the market recur. Like the Jan effect. Do trendlines, fib numbers, retracements, etc., work so well because everyone "knows" they will and, therefore, trades them, or is there some other magical explaination??