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Technical Market Update – January Effect

Posted At : December 18, 2009 2:07 PM

Stock Market Update:

The large caps appear to be showing signs of distribution in as smaller and mid cap indexes have performed a bit better recently. The renewed strength in small caps is likely seasonal in nature and related to the “January Effect” in which small caps generally tend to outperform mid and big caps. In recent years, though, the “effect” has been pushed back to Dec from Jan as traders attempt to front run the rally. The problem is, the January Effect rally tends to be short-lived, usually in the neighborhood of 3-4 weeks, at most. So, small cap market leadership, if it is seasonal in nature, could be similarly brief, as could any rally based on small cap strength. The natural progression for a continued bull market would be a shift in leadership to the large cap area and this needs to be watched closely.

Regards,

Keith Springer

Author of Facing Goliath: How to Triumph in the Dangerous Market Ahead

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