The January Effect and how it relates to Small Caps, or Penny Stocks

The January effect is predicated on the theory that investors tend to sell of their losing stocks towards the end of the year in order to write the losses off on their taxes. Therefore, according to the January effect, stocks will tend to dip towards the end of the year and rebound in January when tax-loss selling has ended.

The January effect is supposed to have a greater affect on small-cap stocks (as opposed to large-caps) since it is assumed that a relatively small amount of tax-loss selling will still have a significant impact on a relatively small, thinly-traded company

Analysis of broad samples of value-weighted and equal-weighted returns of U.S. equities documents that abnormally high rates of return on small-capitalization stocks continue to be observed during the month of January. This January effect in small-cap stock returns is remarkably consistent over time and does not appear to have been affected by passage of the Tax Reform Act of 1986. This finding brings new perspective to the tax-loss selling hypothesis and suggests that behavioral explanations are relevant to the January effect. After a generation of intensive study, the January effect continues to present a serious challenge to the efficient market hypothesis.

So there you have it Gang.... easy huh?....Not really at all useful to those that ONLY invest in the majors....BUT ( and this is a VERY BIG BUT....no, not mine....nice try though )....if you are like me, and ONLY invest in small caps and/or penny stocks...THIS IS OUR TIME OF YEAR!!!!!!!

As month end is indicative of back office selling ( credit departments of EVERY brokerage houses clearing off their books for adjusted loan values ), so is the end of the year for penny stocks. I mean.... it's simple to follow....how many penny stocks that you know of this year alone, have declined in value? If you're a full time VULTURE, like myself, out of every 10, and average of 6 or more will be losers....therefore, "we" sell to "book" the loss and apply it to our gains for the year ( if any..)....are you following me?.....so....if you've done your own DD on a few "juicy" penny plays and are finding yourself at a loss.... you may not be a loser after all.......if your stock is thinly traded....but trades regularly ( VERY IMPORTANT----PLEASE PAY CLOSE ATTENTION TO THAT )....SELL you position ON Dec.31 before noon.

Get a VERY comfortable blanket and some coffee and be prepared to sleep next to your computer ( or have your finger on speed dial to your Broker )....on Jan. 2 ( Not 1st as we're closed ) at 6:30am....BUY back in....more than likely, you'll be buying back at levels slightly lower than where you sold the day earlier...TADA!!!....you're already a head for 2007!!!!!

Pretty elaborate spam on that one, we don't suggest anyone buy anything here, sorry, Thanks for the rest of your report though!!!

This Article was written by Placer_foot member of StockHideout.comPlacer_foot member of StockHidoeut.com Penny Stocks, Stock Picks and Stock Bulletin