The January Effect...NOT!

In a recent post I mentioned the Santa Claus Rally. I naturally assumed it was a good thing as mention of the word rally is a positive thing. Toward year end, the talking heads on BNN confirmed that we were enjoying a Santa Claus Rally. To get an understanding of this I turned to (Google) for some in-depth research. What did we do before Professor Google?

A Santa Claus Rally, I learned, is a run up in the market between Christmas and year end. This occurs, from time to time for various reasons, one of which is anticipation of The January Effect.

Further arm chair research revealed that The January Effect is an extended rally resulting from, among other things, investing by happy people celebrating having made it through another year with the shirts on their backs. Surely, given the gains of 2009 and the year end rally we would be looking for a classic January Effect. Heck, we didn't just get out of 2009 the shirts on our backs, we got whole new wardrobes!

I think our December rally was even jollier than usual. I say this because the good stuff began well before Christmas and continued right through to year end. As mentioned previously, my portfolio hit a high for the year on December 30 and dropped just lightly on the 31st.

January got off to a great start! After the 7th trading day my portfolio was up 3.17% WOW! Sitting on my duff doing nothing sure was paying off!

The TSX hit an intra-day high of 12,070 on January 11 and closed that day at 11,947. We haven’t seen 12,000 since September of 2008.  After January 11 it was pretty much all downhill. So much for The January Effect. Once again, we saw that share prices, and market indexes take the stairs up and the elevators down. By January 29 the TSX hit an intra-day low of 11,084 and closed the month at 11,094. Yup, nearly a 1,000 point drop from the high on the 11th.

In the final week of January good news rolled in day after day. Corporate earnings exceeding expectations along with other evidence that the recovery is for real. Despite this and reports of much stronger than expected growth in consumer confidence on both sides of the border, the markets sold off.

If I’ve learned one thing in the past few years it is that retail investors have difficulty getting ahead of the curve. We read the Globe & Mail, and a bunch of stuff on the Internet and watch BNN until we’re sick to death of their endless repetition, but it’s all yesterday’s news.  Based on the headlines, the final week of January should have produced a five day rally. Instead, we had a five day slide. The TSX dropped each day to new lows for the year. Apparently there are factors at play which neither BNN nor we are privy to.

Other than the previously reported rebalancing of my large fund account I made no changes in January. I still like the good ones and am not prepared to sell the under-achievers at a loss.

As I write this, February has begun on a positive note. The TSX is up 193, on track for its largest one day gain since December 1. Maybe I’ll do some trading this month…maybe.