Will We See the January Effect in 2014? By Market Authority
After some Fed-induced volatility in early December, the rest of the month provided a jolly Santa Clause rally for stock holders. The S&P 500 gained 2.4% for December, enough for its 4th straight monthly advance. Christmas brought even more joy if you bought the dip mid-December and held through New Year’s
However, since the ball dropped on New Year’s Eve, the market has been dealing with a hangover – starting the New Year off with 3 consecutive negative closes. A 4th consecutive day of losses to start the year hasn’t occurred since 1991. Typically, the January Effect causes stocks to start the year off strongly.
The January Effect is a seasonal anomaly whereby the market prices increase more than any other month. First observed in 1942 by investment banker Sidney Wachtel, this theory holds that investors sell stocks into year end for tax purposes and then reinvest the capital at the start of the year. Another reason given is the payment of year-end bonuses in January, which can be invested into stocks.
However, I would argue that the mechanism doesn’t matter as much as the perception. Investors believe that stocks tend to trade higher in January, therefore they opt to hold (instead of selling). The reduction of sellers in the market (while keeping buyers constant) causes higher prices. So even if people aren’t moving their bonus $ into the stock market, the idea that the market goes higher in January becomes a self-fulfilling prophesy.
And in the last few months, this market has taken every possible reason to rally and ran with it.
A Prediction for the Next Five Years By Dr Van Tharp Trading Education Institute
I don’t usually like to make predictions because they have little to do with successful trading. However, I have said for some years that we have been in a secular bear market since 2000. This generally means that while stock prices can go up and even set new highs, PE ratios will generally go down. And new highs are not likely to be true new highs when you take inflation into account — especially real inflation. For example, I tend to doubt the market is truly higher today than it was in 2000 when you take the current rate of inflation into account, much less the decline in the value of the dollar over the past 14 years.
The government claims that the economy is growing when the GDP is greater than inflation. They decide that inflation is only 1-2% so they can show the economy is growing. But when you calculate the CPI the way it was calculated in 1980, then inflation is more like 10%. Shadowstats.com calculates the real rate of inflation based upon the old method and contrasts that with the current government rate “lie” (i.e., so they can make the economy look better and not have to make huge payments to government programs indexed to inflation). Using the old calculation for CPI, shadowstats.com shows the economy has been in a RECESSION since 2000 with just one quarter of 2003 yielding positive growth.
Our debt grows by a trillion dollars each year and our government is not willing to take the measures (ever!) to get us out of the situation. Consequently, the US dollar is in big trouble. Soon, it will no longer be the world’s reserve currency. Further, it wouldn’t surprise me if in the next 2-10 years, the US dollar totally collapses, along with the Yen and the Euro which are not in any better shape. Such events would totally alter the money game that we discuss in depth at the Peak Performance 202 workshop.
People who change their level of consciousness, however, will be able to find great opportunities and thrive during this upcoming massive change. People who do not change their level of consciousness will likely be consumed by fear and panic. Hopefully, most of our newsletter readers and clients will be those who see massive opportunities in the change. That’s one of our major goals at the Van Tharp Institute — to help you transform by becoming happier, raising your level of consciousness (at least out of fear and greed) and becoming more successful as a result.
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