2010: A new beginning
The January Effect & Barometer Concepts
The January Effect & Barometer Concepts
As we approach the new year, I'll be doing a 2010 series designed to get the new & old TSP investor off the a running start.
The January Effect: Historically speaking, in the first week of January small caps over mid & large tend to rise in price due to investors selling before year's end so they can claim a capital loss on their taxes. An important thing about the January Effect is to remember it isn't necessarily easy to profit on this because everyone knows about it. It's also less of an issue when you have more and more folks like me with a ROTH IRA who aren't concerned with end of year taxes.
Here's another thing to consider, the small caps took a bigger hit over mid & large caps during October & November. Could we attribute this to the January effect being pushed back?
The January Barometer "As goes January, so goes the full year" This is a simple statistical fact stating if January closes higher than it began, then the year will finish higher than it opened.
The book Technical Analysis For Dummies
published in 2004 states "Since 1950, this rule has an accuracy reading of 92.5%"
Investopedia "While the January barometer has been seen to produce better than 50% accuracy rates during 20-year periods, it is difficult to produce excess returns by using it since the improved performance by staying out of the market during bad times can be more than offset by larger losses incurred when the barometer incorrectly predicts a bull market. "
Here is another great and current read.
How Accurate Is the January Barometer?
So you get the idea behind these concepts, I encourage you to read up on them yourselves so you have the full range of perspectives offered.
Cheers... Jason
