Santa Claus Rally and January Effect
By Saghir Aslam
(The following information is provided solely to educate the Muslim community about investing and financial planning. It is hoped that the ummah will benefit from this effort through greater financial empowerment, enabling the community to live in security and dignity and fulfill their religious and moral obligations towards charitable activities)
These are two calendar related market forces that are somewhat predictable.
The Santa Claus Rally occurs near Christmas due to the end of tax loss selling during the early weeks of December. Investors like to have both the trade and settlement dates show a December date on the trade slip (this is not actually a necessity to establish a tax loss).
The January Effect occurs because many issues, especially lower priced issues, rise in price in January since the majority of orders are buys. Here again this is because of the abatement of tax selling. This has been quite predictable over the last many years and with a group of 5 to 10 small stocks can be very profitable. This is becoming more widely known.
Remember the chapter on unforeseen events causing the market to react opposite to the way the indicators point.
AS JANUARY GOES, SO GOES THE YEAR
In the past 52 years, the month of January had a net advance 35 times. Only 3 of these times were the January gains not confirmed by a rally for the entire year – 1946, 1966 and 1974.
During the 16 years that January declined for the month, the entire year was lower in every instance but 4, 1956, 1968, 1970 and 1982.
This axiom is true a great majority of the time. It has a better record than the hemline theory or the Super Bowl theory which tend to be tongue-in-check and subjective.
January 1992 showed a 1.7% gain for the Dow Jones Industrial average. This taken together with low interest rates, increasing money supply, and the presidential cycle (in the 15 presidential election years since 1932 the market has advanced 10 times or 66%) the market has a lot going for it in 1992.
It’s all known among stock market investors that 3 rd Presidential year is the best performing year knowing recently it has proved it otherwise.
The best way to invest to get best results is to study, research, analyze, double check, be careful once you have done all of that then look where is the market cycle and invest with guts and watch it closely, have stop losses; you will win most of the time.
(Saghir A. Aslam only explains strategies and formulas that he has been using. He is merely providing information, and NO ADVICE is given. Mr. Aslam does not endorse or recommend any broker, brokerage firm, or any investment at all, or does he suggest that anyone will earn a profit when or if they purchase stocks, bonds or any other investments. All stocks or investment vehicles mentioned are for illustrative purposes only. Mr. Aslam is not an attorney, accountant, real estate broker, stockbroker, investment advisor, or certified financial planner. Mr. Aslam does not have anything for sale.)