Market Talk with Piranha is currently moving to its new home at chrisperruna.com. The new site is up and running but many of the posts need editing as the images and stock charts did not transfer successfully (thanks blogger). I will post all new entries to both blogs – Thank you for your patience while I make this change!

Tuesday, December 27, 2005

January Effect “2006”

…I wrote an article about the so-called “January effect” last December right here on this blog. Many publications and stock market “gurus” will be talking about the January effect and how you may profit from the cyclical trends that supposedly exist. Portions of this entry will reiterate what I said last year but it is important to restate what I believe may help you ignore these talking heads.

Here at MSW, we follow rules and we try to eliminate emotion or at least keep it a bare minimum which allows us to invest intelligently. Without our philosophy, we would be aimlessly throwing money in all directions, hoping and praying for profits. We would most likely listen to hot stock tips and jump on the bandwagon of every new trading system or theory that came across our desks and computer screens.

The rumblings about the “January Effect” are starting to appear in stock market newsletters, brokerage house e-zines and the mainstream market media. I cringe every time I hear some talking head try to convince investors to buy beaten down shares in companies that will bounce in the first several weeks of the year. I see too many people jump at the opportunity to change their investing beliefs because some analyst on the other end of computer wrote an article claiming to make you lots of money in the first several weeks of the year.

Now, looking back at the MSW screens from late December and January, we did find several small cap stocks (below $10) that did make some big moves but they were still part of my system. I didn’t jump ship in search for a bounce back stock. These stocks included:

SPTN: first covered on 12/31/04 at $6.64 (made a total of 16 weekly screens with the last screen in July 16, 2005). Peak screen on 7/9/05 at $15.04, 127% gain

CULS: first covered on 1/9/05 at $7.69 (made a total of 9 weekly screens with the last screen on 4/16/05). Peak screen on 4/9/05 at 11.53, 50% gain

FORD: first covered on 1/23/05 at $6.38 (made a total of 32 weekly screens with the last screen on 11/19/05). Peak screen on 8/6/05 at 26.80, 320% gain - Top gaining MSW Stock in 2005!

Be strong and ignore the noise coming from every direction. Instead of looking into their theoretical bounces that may or may not occur, take the time to review last year’s trades and document the good and bad aspects of your portfolio. Look for your best trades and understand why you made money. Study your poor trades and understand where you made the mistakes. Correct those mistakes in the coming year.

Be honest with yourself and flag the areas of your trading system that need the most work and continue to polish your strengths. Don’t abandon what is working because a "talking head" on television tells you his system works in only 15 minutes per day, two days per week. In recent months, we have talked more about options and the leverage they provide and I know some of you have made decent profits in 2005 due to call contracts. Don’t get over excited and think you will be a multi-millionaire by the end of 2006 because you have invented the latest “fool-proof” options strategy. Work the system step by step and document what works and what doesn’t wok. Don’t bite on the “get rich quick” options programs that play across your television at 3am on weeknights.

Stick to one system that works and try to consolidate the strongest features of that system to your advantage and ignore the hundreds of other systems and indicators that can be found on every investing web site on the net.

We focus on price and volume here at MSW, which is all you need to become a successful trader. Establish strong or accelerating fundamentals and then confirm a quality trend on the charts and you will reap returns better than 99% of the general population.

Stay focused in the New Year, start fresh and think positive! Instead of reading 100 books this year on 80 different trading systems, reread a few essential books that focus on one system that best suits your style of investing. Good luck in 2006!

-Piranha

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