Is the January Effect Still Relevant?
January 03, 2010 9:39 PM
As trading gets underway in 2010 the equity markets face an uncertain future. Will investors take profits after the 2009 rally or will the markets be lifted by the January effect? Market historians and investors are continuously fascinated by the January effect because it often sets the tone for the rest of the year.
According to the "Stock Trader's Almanac", since 1950 there have only been five times when the January effect turned out to be a poor indicator of the rest of the year. Therefore, many traders will be anxiously watching how the first five trading days of January play out. If the market continues its upward trend, look for small-cap stocks to outperform.
This is because many mutual fund managers prefer to sell off shares in small companies to shore up their end-of-the-year balance sheets, then repurchase them early in the new year. Some names that I will be watching are Morton's Steakhouse (NYSE: MRT) and Manitowoc (NYSE: MTW), with market caps of $51.75 million and $1.30 billion, respectively.
