The January Effect, Does The Market Go Up in January? And Here’s Why It Does More Often Than Not
I first heard about the January effect when I was a young college student taking my first investments class of my finance degree. Overall, the January effect sounded like something I can get behind, albeit Not necessarily something that I would actually treat on, or risk my own money on. Overall, I think the January fact works to some extent, but that you should not try to use it for short term gains, but rather instead use it to dollar cost average your portfolio more effectively. Yes, more often than not the January fact is going to work, not just because of the factors that I mentioned before, but also because of someone tends to believe that it works, as the majority of those to trade stocks do, that the stock market tends to have a self for filling prophecy, due to momentum. The following blog post will look at the January Effect, and of why the market tends to go up in January, more often than not.
What is the January Effect?
Because the stock market is very likely to golf in January, due to the January affect, it would be wise and prudent, to not merely speculate on short-term gains, dumping cash flow and any stock with a high beta that you deem appropriate, but rather to increase the holdings in your well diversified portfolio, prior to January, in order to make use of these games. Assuming the majority of you that read this blog have a diversified portfolio, such as shares in the S&P 500, or shares an index fund that closely tracks the S&P 500, you would be wise to load up on shares in October November and December, primary months were the stock market is falling, so that you can make best use of these games, com January, and make cash in a way that is safe. Other similar and related technical analysis factors include:
The October Effect
The Super Bowl Indicator
The 50 Day Moving Average
The 100 Day Moving Average
The Breadth of The Market Theory
The Odd Lott Theory
The Castle in the air theory
And a host of other similar and related technical analysis factors, read on or subscribe to our blog for additional details and information.
Why The January Effect Is Not Always Right
As with just about every single other technical analysis factor out there, none of these things are exact sciences. In both 2018 and 2019, the stock market went up in January, however in 2017, it actually had a down market in the month of January, and a low first quarter. In 2020, we had an excellent January, as the stock market hit its greatest height ever, before falling into the great crash of 2020 that we are in right now. Technical Analysis in my book, is not entirely useful on its own, however is very useful for picking stocks when blended with things like Diversification, Global Diversification, Index fund Investing, fundamental analysis, accounting, and financial statement analysis. Blending Fundamental Analysis with Technical Analysis can be good for stock picking in that you can read momentum and market trends, and blend that with things like the Price to Earnings ratio, watching for how the reduced or increased earnings multiple blends well with other popular technical analysis factors.
Is It Possible to Even Profit Off of The January Effect? Modern Portfolio Theory and The Leading Index Fund Investment Research Says No
In my book, the answer is yes, in that I have actually made a profit before from buying stocks in January, and short selling stocks in October as they fall to their inevitable bottoms in the spooky Halloween month of the year (this would be the October Effect.) However, I also somewhat subscribe to Modern Portfolio Theory, modern index fund research, and the academia finance school of thought, in that most research shows that things like market timing will lead to you losing money more often than not. If you are going to start betting on technical analysis factors however, and playing the gambling game of the stock market, the January Effect is one of the safest technicalities to use for doing so!
Final Thoughts on the January Effect, How You Can Use This to Make or Break Your Portfolio
Have you used trading strategies that take place in the month of January or October, or even the Super Bowl Indicator in order to make money, lose money, or attempt to hedge a portfolio in your stock trading career? Subscribe to our blog or comment down below with your thoughts and opinions on the article, and tell us what your experiences have been with trading so far! Until next time, you heard it at Inflation Hedge.com.
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