Expect January Ill-Effects This Year

 |  Includes: DIA, IYZ, QQQ, SPY, XLY
by: Markos Kaminis

Stocks were up stupendously in 2013, and the gains were widespread, so I think this year we could feel a void as a result. The January Effect may instead yield the ill-effects of a previously stellar market performance. With little or no fuel to sustain stock buying, the market will more likely see the selling of shares on pushed forward tax gains in January. The actionable advice here, therefore, is to sell stocks as I also previously suggested in the article, Sell the SPY on High.

Click to enlarge

Chart at Yahoo Finance

The charts of the SPDR S&P 500 (NYSEARCA:SPY), SPDR Dow Jones Industrial Average (NYSEARCA:DIA) and the PowerShares QQQ (NASDAQ:QQQ) all show the amazing performance of the stock market this past year. The gains were astounding, as you can see via the table below. Netflix (NASDAQ:NFLX) led all S&P 500 stocks higher, appreciating roughly 298%. The best performing stock sector was the Consumer Discretionary Sector, as evidenced here by the 41% gain of the XLY security. Still, the worst performing sector also rose this year. It was the telecom sector, and the performance of the iShares U.S. Telecommunications ETF (NYSEARCA:IYZ) still managed 22.5% appreciation.


2013 Performance

SPDR S&P 500


SPDR Dow Jones


PowerShares QQQ


Consumer Discretionary Select Sector SPDR (NYSEARCA:XLY)


iShares U.S. Telecommunications ETF




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That's widespread appreciation, and it portends a less than stellar January, if not an outright downslide. Just 38 stocks from within the S&P 500 depreciated on the year. So where then will the funds from tax loss selling flow to fuel a January Effect? I believe that whatever fuel exists will be exhausted early in January, or has already been exhausted in late December's Santa Claus Rally.

Thus, stocks are in my opinion lacking positive seasonal catalyst in January, and given that stock market paper gains are aplenty, tax gain profit taking might occur. Such gains taken now instead of the end of 2013 allow investors to pay taxes in 2015. It's a cash flow factor that leads me to suggest that the stock market is more likely to decline in early 2014 than it is to rise. Thus, I suggest investors act preemptively and sell the market and especially richly valued shares like Twitter (NYSE:TWTR) now. I suggested as much about Twitter and also about Alcatel-Lucent (ALU) in recent articles published here.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.