The January Effect - is it a thing?
Google ‘January effect’ in the news tab and you’ll see plenty of headlines, like this one:
Jan 2, 2022: JPMorgan still expects a boost from “the January effect.” The phrase refers to the belief that the market’s best month tends to be the year’s first.
Notice the wording? ‘Belief’? Trading and investing should not be based on beliefs but empirical evidence. So, lets look at the last 22 years, back to the year 2000. Here’s the results:
Does that look like a positive January trend to you? Nope, me neither! The average is -0.13%. What is sad is that people read these articles and act on them – and then wonder why they lose money.
How Did Santa Do?
Since we are on tock market beliefs, how did the Santa Rally go? Very disappointing, in my opinion. From the open on 27th December until close on 4th January SPY increased from $472.06 to $477.55, an increase of 1.16%. Sure, its better than nothing, but can we really call it a rally? I think not.
Predicting SPY
Mark Twain said: History never repeats itself, but it does often rhyme.
And on the last blog post I wrote:
If we look at the chart for all 2021, then we see that SPY has bounced off the 50 day SMA 6 times already this year. Will this be the 7th? Or are we heading into more pain?
So, what happened? Well, we got some pain, but it was short lived. On the 20th December SPY dropped right through the 50 day SMA and bounced off the 100 day SMA. The next day it closed over the 50 day SMA.
Who said traders weren’t predictable?
What about 2022?
I don’t know. No-one does. But at this time of year pundits and finance reporters are full of doom, gloom and euphoria. Keep an eye on the sentiment but don’t take any of it too seriously.
Happy New Year everyone, and I hope that it is wonderfully happy and prosperous!
