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January Effect, Will Appear Again?

Every month of January, our stock market index goes up or higher than previous month (December of previous year) despite there are no positive events which push the stock price up.

This such a sentiment is said as natural, unless if there are serious negative events occurred then the market sentiment will be different.

How true this point of view? The statistic below will give you the answer.

The table below presents the five years KLSE index which comparing highest and lowest index between January (current year) and December (previous year).

                          
                                    Table 1: KLSE Index For January & December

                                    Begin              Highest           Lowest            End

Dec 04             919.17             919.17             897.34             907.43
Jan  05             903.84             937.56             902.49             916.27

Dec 05             887.80             900.49             885.48             899.70
Jan  06             897.13             914.01             901.32             914.01

Dec 06             1080.11           1098.59           1060.36           1096.24
Jan  07            1117.09            1189.35           1106.06           1189.35

Dec 07             1419.34           1447.04           1391.61           1445.03
Jan  08             1435.68           1516.22           1354.48           1393.25

Dec 08             848.43             876.75             835.17             876.75
Jan  09             894.36             927.62             873.41             884.45

Dec 09             1266.71           1272.78           1255.66           1272.78
Jan  10             1275.75           1308.36           1259.16           1259.16

            Source: http://finance.yahoo.com


What are the findings from the figures above?

Highest index of January always higher than highest index of December and lowest index of January always higher than lowest index of December except January 2008.

When highest and lowest index are higher in the following month, it shows that market is
uptrend. Therefore, the statistic has concluded that from year 2004 to year 2010, index of  January was always higher than December (except January 2008)

Since every January the market is uptrend, therefore,  we call this phenomenon as “January Effect”.

It can be a guideline for investors. Investors should buy stock in December (of course fundamental stock) and sell it in January.

Will there be January Effect next year (2011)?

Supported by the historical statistics, from my point of view  “January Effect” will appear again in year 2011.

- Sabri Jalil
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