We all follow the calendar in planning our future so do the markets and so do many economic and business trends. Companies report their earnings quarterly. Tax is collected at the end of the year. Companies close their books for tax purposes at the end of the year. Investors are also evaluated quarterly.
Retail sales follow the holiday season. Demand for commodities follows the growing season. Demand for fuel follows the weather. Keep these three calendar effects; The January Effect, The Monday Effect and The October Effect in mind when you trade stocks.
Grow Calendar 2011
The January Effect: For the last many decades stock market tends to go up in the early part of January. The most obvious explanation is the most of the investors tend to sell at the end of December for tax purposes and buy back those securities at the beginning of January.
It may also be due to the fact that at the beginning of a New Year, people are flush with excitement and hope for the New Year that just started. They want the market to go up, so they go and buy securities and put their money to work for the rest of the year.
If the stocks go up in January, you could take a jump by buying in December. That would make stock prices go up in December and if they go up in December, you could buy in November. This is precisely what people started to do and now you will see a very weak January Effect taking place.
In an efficient market, these price anomalies are spotted by the people and then they trade on them until they disappear. Now some years January Effect can be really pronounced and other years it can be weak. Just use this January Effect to understand the market psychology not as a hard and fast trading rule.
Then there is something known as the Monday Effect. When the weekend ends our mood goes soar. Heck, another week has started. So most of us tend to be in bad mood on Mondays. Most of us are not happy going back to work on Monday. So this bad mood starts getting reflected in the market. During the weekend, we also tend to analyze the bad news during the past week. So the first thing we do is sell the stocks that we thing are not good. So stay away from the market on Mondays.
The October Effect: Stock market had two great crashes one in October 1929 and the other in October 1987. Due to these two great crashes traders believe that bad things happen in October. Nobody knows why it happened in October but it happen so the October Effect. Tech bubble in NASDAQ market burst in March 2000, so you never know which month is bad!
Calendar Effect in the Stock Market Grow Calendar 2011
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