The Xmas Rally & January Effect

In the comments on ‘Day Trade?”, I posted a question Gadi e-mailed me. In this blog, I’ll answer what I meant in my Dec 29 Blog.

The Dec 29 blog had to be taken within the context of the blogs I had been writing, including my comments on the Xmas rally. This is a setup I use and its component parts are made up of:

  1. Comparing the close of the Friday before Options Expiration with Dec 23. A lower Dec 23 close is bearish; a higher Dec 23 close is bullish.
  2. Comparing the close of the first Friday in Jan whose three prior trading days are not a holiday (usually the 2nd Friday in Jan). This year Jan 9 was such a Friday. For this close, I also need to see a bull or bear bar to confirm the closing direction.
  3. If both (1) and (2) confirm the direction, then I expect to see Jan 31st’s close (when compared to Dec 31 close) to be in the same direction. If the Jan monthly barĀ  shows conviction, I would then expect the Jan Effect to come into effect: ‘where goeth Jan goes the year’.

This year, I did not receive any indication from the Xmas rally. Figure 1 shows the signals were mixed.

2009-01-13-sp-xmas-rally.jpg

FIGURE 1 S&P Daily

A couple of concluding comments:

  • For those that have purchased the Nature of Trends, I draw your attention to the 5-day RePo sell signal triggered on Jan 9; for those that attended the webinar, note that the RePo sell came within the time and price window for the sell signal to occur.
  • Finally, Ana Wang sent me an interesting read on ‘the Stone Age Brain’ and Trading http://awanginvest.com/?p=1030#comment-7499

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