January Effect

Facing January, most investors have come to expect a surge of buying often termed the "January effect." To be sure, it is usually a strong market month. The most feared month is October. Many remember severe intermediate declines in October come to be known as "October Massacres." They especially remember the 1987 crash, the worst of which took place in October. And everybody knows about the 1929 crash, once again an October event.

However, January is far from innocent as the starting month for severe declines and cyclical bear markets. It's just that you have to go all the way back to 1981 to find an example. In that year a weak January was followed by a new high in the second quarter. Alas, this in turn proved to be the top for a nasty bear move extending well into the next year.

A weak January in 1977 followed an exuberant December high, all part of a complex top and followed by a nasty decline. This had certain similarities to the present.

In 1975 a weak January marked the beginning of a bear move that started above 1000 and didn't end until two years later at 570. Brrrrr.

In 1969 a weak sidewise January was unable to match the December high – a high that proved to be a serious bear-market top.

In 1966 the final top actually occurred in January. The market plunged in February, beginning a severe cyclical bear market.

A weak January marked the beginning of the 1962 crash. Before that a weak January marked the beginning of a relatively mild 1960 bear market.

We can hope for a good January. But don't take it for granted.

No matter how it turns out, we wish you a happy and prosperous New Year.