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January Effect

The so-called “January Effect” is not what is was anymore. It is not so important as it was and more and more people are using tax-sheltered retirement plans, and that is one of the most important reasons why they tend not to sell at the end of the year for a tax loss.

Earlier, the “January effect” affected small cap stocks much more than the larger one. This trend is declining much because the investors have adjusted for it.

Definition:

A general increase in stock prices during the month of January. This rally is generally attributed to an increase in buying, which follows the drop in price that typically happens in December when investors, seeking to create tax losses to offset capital gains, prompt a sell-off.

Please note that the optimism in the market right now is historic. The charts show us that we are very close to a tipping point, but it could take some time before a major reversal occurs.

Price is always the most important and the most valuable indicator. The price in the indexes must show some reversal pattern on a daily chart, but until then, the uptrend remains intact.

January 2013 was strong, but in the last 15 years it has not been that strong. December has been a very strong month the last 15 years. How will january 2014 be? The first trading day of 2014, all the major indices was trading lower. It is the first time in six years the S&P 500 and Dow ended the first trading session of the year in red territory.

The optimism in the market tends to be very strong in the early stages of a bear market, and the charts tells us the truth. It happens again and again and again. We saw it in 2007. People poured more money into different U.S stock funds in October last year, and that is more money than any time in at least 7 years. Keep in mind that this includes the 2007 stock market top.

News today: ISM Non-Manufacturing PMI & Factory Orders at 10:00am.

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Disclaimer: The views expressed in this article are those of the author and may not reflect those of Shiny bull. The author has made every effort to ensure accuracy of information provided; however, neither Shiny bull nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Shiny bull and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.

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Window dressing

It`s time to look at your stock portfolio. What is your winning and losing stocks? What are you gonna do with your winning stocks, and what are you gonna do with your losers? Do you have a strategy? The fund managers are focusing on two things: to outperform their competitors and to outperform a given sector benchmark.

Every year in late December, many investors, mutual fund and portfolio managers improves the appearance of theirs portfolio / fund performance to make it look better. Mutual funds usually do this before the presentation to clients or shareholders.

Many fund managers like to window dress. They look at their portfolio and sells the big losing stocks. This is good for tax planners. In addition; they purchase high-flying stocks, simply to improve their portfolio. This theory is questionable, because investors can see the actual performance of the fund at a given point of time.

The losing stocks tend to go up when all the investors are selling them. That`s why it can be lucrative to buy the losing stocks at the end of the year. Some mutual funds like commodity funds invest in other stock sectors like some hot sectors at the time, just to disguising the funds holdings. The clients do not know what really going on and what they are paying for.

In a short period of time, this strategy will make the mutual fund more attractive, but in the long run, it is difficult to hide poor performance. As a private investor you can buy some cheap penny stocks to make it look better. As you know, in average of 41 penny stock will double every trading day on Wall Street.

This is why December is so special, and this is why we traditionally see a so-called January effect. There is two reasons for that:

1. Tax loss selling: In (late) December investors sell stocks in which they have losses in order to lower their taxes on net capital gains, thereby further increasing the downward price pressure of losing stocks. In January the proceeds from these sales will be reinvested, resulting in large January returns.

2. Window dressing: In (late) December portfolio managers sell losing and risky stocks and hold cash and blue-chip stocks instead to make their year-end portfolios appear more conservative. In January the proceeds from these sales will be reinvested, resulting in large January returns.

It doesn`t mean that this is going to happen every year. So far, we have not seen any correction and investors are waiting for the FED meeting next week. If the FED start to taper, we will probably see a big selloff. Wait and see. News today: Crude Oil Inventories at 10:30am, 10 Year Note Auction at 1:01pm Fed Budget Balance at 2:00pm.

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Disclaimer: The views expressed in this article are those of the author and may not reflect those of Shiny bull. The author has made every effort to ensure accuracy of information provided; however, neither Shiny bull nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Shiny bull and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.

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