Human nature never changes that's why the same patterns are always repeated. Even if a few do change their nature, there are always more newbies that come in with the basic human nature to replace those that did change. The problem with everyone jumping on the same pattern at the same time is that it tends to stop working. If everyone is looking for IBM to breakout and start buying at the same time they create a self fulling prophecy, and the stock moves up, but when they try and sell, the stock moves down faster then it moved down because there was no real buyers in the stock. So only the few who bought early and sold into the move make money. So you have to adjust, or use the contrarian theory in that case. Patterns come back into play when everyone gives up on them, then the real buyers push them up. In the example I gave, the traders that are selling could potentially create a fake breakdown too, cause since there are no real buyers, the market makersor specialists will let the stock drop under the breakout or bounce off the trendline to get everyone to panic so they can accumulate the stock.
I think there may be some plays next week and possibly the week after. I'm looking to keep an eye on heavily owned stocks (institutional holdings) that have been dumped in December for tax loss selling and ones that everyone thinks will be good long term holdings (larger cap tech stocks for example). I remember last year EMC was one of these. Sold off in December for tax loss selling and then rebounded significantly the first week in January. But of course it sold off after that along with everything else. So this is just a trading play to me. Also looking at small cap stocks although many have already rebounded a lot from the Oct. lows. Also be on the lookout for earnings warnings the next few weeks. Of course as we all know the geopolitical issues are weighing heavily on the markets now so that will affect whatever usual movements might take place. And also they'll be talking more no doubt about how poorly consumer spending went during the holiday season.
check this January effect: http://news.yahoo.com/news?tmpl=story2&u=/021227/168/2xsnc.html&e=12&ncid=996
Tax-loss selling by institutions usually occurs in Sep/Oct. hence the October rally we saw. The fact is, most Januaries are positive. In fact, 70% of all years since 1870 have been positive. How about the "Annual Effect".
Yeah I've always thought of how idiotic the concept that people throw around that certain days around holidays in the past 21 years tend to be up 65-70% of the time, and therefore that day this year should be up. Some correlation is desperately searched for because it's around a holiday, when the fact that it's the day before Christmas is absolutely no basis for that day being up. If you picked a totally random day from the past 21 years I'm sure you'll find that day in the past 21 years has been up 65-75% of the time. Gee whiz, maybe February 17th is a special 65%-75% up day in the past 21 years! I'm so smart I amaze myself sometimes. Well, guess what, the past 21 years have been witness to one of the greatest bull markets in history (depending on whether or not you count 1987 as the end to a bull, in which case past 16 years). 65-75% of the years have been up, more than that actually. So yeah 65-75% of Christmases have been up. That's a number that was thrown around on briefing.com, and the exact timeframe they picked to do their studies on was the past 21 years. Why not 20 years, that's a nice even round number, or if we're going with odd numbers why not 23 or 25.79 years ago? Those are as good numbers as 21 years. Well, 21 years takes us to 1981, or more precisely the end of 1981, or practically into 1982. The date cited as the beginning of the 1982-2000 bull. What going back any further or even using 20 (which would have cut off the start of the bull market) would have made their data too accurate and not selectively biased? I just feel bad for anyone who chose that data to trade on or to make trading decisions. I guess you know what they say, "A fool and his money..." Ik
i think soros talks about the impact of the reaction to some news, change or anticipated event actually impacting and altering the event, or perhaps evolving into a self-fullfilling prophecy. it might have been mr. train writing about soros - but you get the idea. pretty soon it will be the "last week of the year effect" as everyone front-runs january!
That's a good point about Sep/Oct being one of the main times for institutional tax-loss selling, but there is still tax-loss selling in heavily owned stocks that are down for the year at the end of the year. I've seen it. And these stocks do tend to rebound in Jan. Also it will probably be the second week when most of the institutional money starts to flow in as they usually take the first few days of the year to get together and form a game plan to decide what they want to buy. Of course, as I mentioned, with Iraq and North Korea, weak Christmas sales, and earnings warnings, etc.on the table, all big bets are off for this year. We'll see how it goes. Hope we do well. See if we can help each other out.
a. the institutional money have no clue what they are doing. The last thing they are doing is getting together to form a game plan. They are trying to figure out if they should buy SPY to play the January Effect which happened two-three months ago. b. My guess (so give it < 50% chance) as to what fuels this January rally: Saddam stepping down, moving to Libya, and us simply moving in there without a war.
Interesting thought about Hussein stepping down. I don't think he can and he knows it. If he steps down he is a dead man. He will be shot. He cannot lead an open government for the same reason. Any attempt at civility will lead to his assassination. His only play is to stay the current course until Iraq is invaded and he is captured or killed. I sure hate to think of the tax dollars to be spent prosecuting him and then keeping him safely imprisoned for years. For my money, there is a cleaner, neater solution. Of course I love simplicity. Tap tap... a job well done.