A Positive January Effect:

A few posts ago I expressed annoyance with “experts” who explained the January Effect to be one of those, “as January goes – so goes the year” rules – which is incorrect. The January Effect is in reality the bullish tendency of the smaller companies (the Russell 2000) to out perform the large companies (the Dow or the S&P500) during the month of January. This important signal – thanks to the Stock Trader’s Almanac – is somewhat based on bullish investors biding up the economy sensitive smaller companies as we begin the New Year. The “as January goes – so goes the year” thing is actually the January Barometer which relies mostly on the market direction during the first trading week of the New Year.

Our chart displays a bullish January Effect in the US (so far) – which means the Russell 2000 is out performing the S&P500 through January 21 as measured by a simple spread. In our local TSX we also have the S&P/TSX Small Cap index out performing the large cap S&P/TSX60 index.