January Effect: Here Are a Few Rebound Candidates

By
A A A

(Written by Rebecca Lipman. List compiled by Eben Esterhuizen, CFA. Short data sourced from Yahoo! Finance, institutional data sourced from Fidelity.)

Traders often attribute the first five trading days of January with mystical fortune-telling powers. It’s called the “January Effect,” and it refers to the patterns that have often helped to predict the year’s overall performance.

Business Insider reports: “Of the 38 most recent years that the first five days resulted in a gain, the year, itself, was up 86.8% of time. The pattern is a bit less successful when the first five days are down.” So far, it looks like the year is off to a good start. The Dow is up more than 170 points.

Full Month Effect

But let’s take a step back. How important is the month of January in the grand scheme of things?  Dan Greenhaus at BTIG explains that it isn’t. He argues January is just as telling of an indicator as other months, and that the greater importance placed on January is overrated.

Consider: “When February is down, the 12 month return inclusive of that February is 2.0%. When February is up, the S&P 500 returns 12.53%. When March is down, the 12 month return inclusive of that March is 3.5%. When March is up, the S&P 500 returns 11.46%. When April is down, the 12 month return inclusive of that April is -0.23%. When April is up, the S&P 500 returns 12.87%”

The pattern continues.

More on the January Effect

The “January Effect” also refers to the idea that investors sell losing stocks at the end of the year to better their tax returns – lowering prices- that later rise in January on new demand from bonus season and bargain hunters.

The casual investor can theoretically capitalize on this January effect by searching for and buying up depressed stocks in December and then selling, with proper timing, in January.

But as this phenomenon becomes more recognized it starts to lose its edge. Indeed, Kapitall reported in November that the knowledge of this trend was becoming so prevalent that those wishing to take advantage of it may be better suited to start buying rebound candidates in November instead.  

Business Section: Investing Ideas

Looking for stocks that could benefit from a bullish January effect? To help you explore this idea, we started with a universe of stocks that had a dismal December.

To create this list, we focused on the 200 worst performing stocks with market caps north of $300M.

To refine the list, we collected data on institutional transactions, and identified the names that have seen significant outflows during the Q4 quarter.

And to further refine the list, we collected data on short-seller trends, and identified the names that have seen a significant decrease in shares shorted during the current month (i.e., short-sellers think the upside of these stocks outweighs the downside).

Hedge fund managers are bearish on these losing stocks, but short-sellers appear to be signaling that the bottom is in place for these stocks–what do you think? Will these names benefit from the January effect?

Analyze These Ideas (Tools Will Open In A New Window)

1. Access a thorough description of all companies mentioned
2. Compare analyst ratings for all stocks mentioned below
3. Visualize annual returns for all stocks mentioned

1. VanceInfo Technologies Inc. (VIT): Engages in the provision of information technology (IT) services. The stock has lost 18.07% over the last month. Net institutional sales in the current quarter at -3.7M shares, which represents about 17.59% of the company's float of 21.04M shares. Shares shorted have decreased from 11.45M to 8.89M over the last month, a decrease which represents about 12.17% of the company's float of 21.04M shares.

2. Trina Solar Ltd. (TSL): Designs, develops, manufactures, and sells photovoltaic (PV) modules worldwide. The stock has lost 16.50% over the last month. Net institutional sales in the current quarter at -2.1M shares, which represents about 3.54% of the company's float of 59.34M shares. Shares shorted have decreased from 21.12M to 18.90M over the last month, a decrease which represents about 3.74% of the company's float of 59.34M shares.

3. Blyth, Inc. (BTH): Operates as a multi-channel company in the home fragrance and decorative accessories industry. The stock has lost 13.70% over the last month. Net institutional sales in the current quarter at -725.6K shares, which represents about 15.71% of the company's float of 4.62M shares. Shares shorted have decreased from 571.96K to 468.20K over the last month, a decrease which represents about 2.25% of the company's float of 4.62M shares.

4. Yingli Green Energy Holding Co. Ltd. (YGE): Engages in the design, development, manufacture, marketing, sale, and installation of photovoltaic (PV) products in the People's Republic of China and internationally. The stock has lost 12.04% over the last month. Net institutional sales in the current quarter at -13.4M shares, which represents about 14.65% of the company's float of 91.46M shares. Shares shorted have decreased from 20.21M to 16.48M over the last month, a decrease which represents about 4.08% of the company's float of 91.46M shares. 



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Investing Ideas , Stocks , US Markets

Referenced Stocks: VIT , TSL , BTH , YGE

Kapitall

Kapitall

More from Kapitall:

Related Videos

Stocks

Referenced

90%
100%
69%

Most Active by Volume

85,467,945
  • $16.74 ▼ 0.30%
83,530,302
  • $12.49 ▲ 85.31%
68,697,805
  • $42.55 ▼ 0.77%
58,516,965
  • $101.63 ▼ 0.03%
49,234,469
  • $74.58 ▼ 3.74%
39,038,134
  • $8.56 ▲ 2.27%
37,813,410
  • $49.38 ▼ 5.24%
37,004,144
  • $46.24 ▼ 0.97%
As of 9/15/2014, 04:15 PM

Find a Credit Card

Select a credit card product by:
Select an offer:
Search
Data Provided by BankRate.com