March 11, 2011 | In: Opinion

The January Effect in the Stock Market

For those who don’t know, the “January Effect” is a phenonmenon where most stocks surge in the month of January. The January Effect completely fades by the end of January, where investors start looking at the real fundamentals of the stock for trading.

So why do we have the January Effect?

The reason is that in December, most (small) investors start selling their stocks (especially small cap stocks) in order to claim capital losses on their taxes. Investors (sometimes the same investors) start buying the same stocks that they sold again in January, causing more demand and thus upping the price of the stock.

I thought before that the January Effect was a myth, but I can’t think of any stock that I traded at one point or the other (non-ETF) that didn’t go up in January, and this applies across the board (small cap and large cap stocks).

Let’s take a look at some examples…

Bank of America (NYSE:BAC)

Bank of America January Effect

Take a look at the chart above, the stock has jumped 85 cents in one day, up 6.3%. By mid January, the stock was up 14% before starting to retreat.

Masco Corporation (NYSE:MAS)

Masco Corporation January Effect

Masco Corporation, the home improvement and building giant, went up 39 cents on January first, or 3%. What’s more interesting is that the stock jumped to $14 on mid January, or up $1.34 (10% from the beginning of the year).

Nvidia Corporation (NYSE:NVDA)

Nvidia Corporation January Effect

Nvidia jumped more than $4 in just 4 days from the beginning of the year, and closed the month $8.5 higher, or 55% higher!

Think of any stock, that is not an ETF stock, and that didn’t have substantially bad news on January first, and you will see that the January Effect is real, and there’s a potential of making real money from this phenomenon. Here’s a guaranteed tip an investor could use once a year!

Other stocks I can think of at the moment: C, CSCO, AAPL, GOOG. The list is endless!

Note: All images are courtesy of Google finance.

9 Responses to The January Effect in the Stock Market

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BAC – You Have Been Warned « Fadi El-Eter

April 18th, 2011 at 5:45 pm

[...] stock had a nice January Effect, but it just couldn’t sustain the [...]

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What Is the Difference Between a Wash Trade and a Wash Sale? « Fadi El-Eter

September 7th, 2011 at 11:56 am

[...] BAC will recover. As you probably would have guessed, a wash sale is the main reason behind the January effect. It is important to note that in the US, an investor cannot claim an unrealized loss from this [...]

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Are Stocks a Good Investment for 2012 « Fadi El-Eter

October 19th, 2011 at 8:26 am

[...] for next year, and I’m sure in January of 2012 all these stocks will experience a very strong January Effect (imagine all the sells in December to claim for capital losses and all the buys in January for the [...]

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When Is the Best Time to Invest in the Stock Market? « Fadi El-Eter

November 16th, 2011 at 2:52 pm

[...] This phenomenon (investors selling their losing shares in December and buying back in January-February) is called the January Effect. [...]

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Stock Market Best Kept Secrets « Fadi El-Eter

November 17th, 2011 at 3:30 pm

[...] The January Effect: Rare are those who know about the January Effect, when stocks go down in December and then go up until mid February (see the best time to buy stocks). [...]

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Investment Strategies for 2012 « Fadi El-Eter

December 6th, 2011 at 6:12 pm

[...] prices). The buying spree will continue until mid February. This phenomenum is called the January Effect, and is well know in the stock market for decades [...]

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Worst Stocks to Buy in 2012 « Fadi El-Eter

January 2nd, 2012 at 4:50 pm

[...] now in the beginning of January 2012, and the January Effect is now set to take place, stocks that should not go up will go up, merely because those who have [...]

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The Most Hated Stocks « Fadi El-Eter

January 11th, 2012 at 6:17 pm

[...] 3. BAC: Bank Of America is one of the most hated stock ever. Show me an investor that hasn’t lost money in Bank of America and I’ll show you a person who’s not really an investor. Everyone who’s anyone (including Warren Buffet) bought BAC shares and lost a lot of money on them. Some day that Bank of America won’t even exist in a year from now, I say I don’t care, because I know I will never ever lay my hands on this sucker anymore. Of course, you might say that volume has increased year over year on BAC but this mainly because you can now buy almost 3 BAC shares with the same amount of money that you used to spend to buy 1 BAC share with. BAC has lost almost 60% of its value last year. This year it’ll probably lose the same (I’m sure you won’t believe me now because BAC is up 21% so far this year, but remember, this is the January Effect). [...]

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Beware Bank of America « Fadi El-Eter

January 23rd, 2012 at 5:40 pm

[...] let’s first remember that it’s January, and we all know of the January Effect in the Stock Market. BAC is a stock that has a very healthy January Effect, simply because it consistently have had bad [...]

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