SO GOES JANUARY...SO GOES THE YEAR

uh oh! if this relatively meaningless historical indicator of stock market performance holds true, 2003 will be a down year for stocks. i know it seems silly but many market forecasters, equity strategists and wall street guru types look to this for guidance on how to invest your money. unfortunately they probably will not put much credence in it for the upcoming year because then they would be out of business till 2004. but nonetheless it is a fairly reliable indicator predicting the broad market outcome accurately some 90% of the time...i.e. when january is up the year is up and when january is down the year is down. in fact for the past 40 years it has a near perfect record on the downside forecast. so sell 'em now and come back in december for next years "january effect", which by the way wasnt very effective this year.

what i mean is this. wall street has a way of creating reasons to trade even when there is no reason to trade. so they make up things to get you to trade. the "january effect" trade idea is a perfect example. many traders buy stocks in late december anticipating a new years rally. as for the fundamental reasons that there is the so-called "january effect", there are some very real reasons why january is normally an up month. new year optimism, portfolios have been purged in december and get rebuilt in january after the 31 day tax wash rule timeframe, many people get bonuses in late december or early january, contributions to 401k accounts start up strong as high earners put in big amounts at the beginning of the year and very little or none towards the end of the year, and pension inflows get invested. other than these trends and inflows of money, there is no business reason for january to be up.

that being said, january is normally an up month. but as we've seen throughout the last few years, lots of things that used to happen arent happening, and lots of the things that used to work arent working. so with this year starting off with the major indices down between 1% and 4% we ought to hope that this indicator doesnt work as well as it has in the past.

have grateful day!

larry