re. the timing for tax-loss selling and the January effect:
I've looked into this, because I often short broken stocks during tax loss selling, and then cover them and play the January effect. To make a long story short, if you short broken stocks for the tax loss selling, you want to cover them right around Christmas. Then if you want to go long some beaten-down stocks, you want to do it during the week between Christmas and New Year's.
A chart of historical data that I have shows week-by-week performance of a low-priced stock index, averaged over many years. This chart shows that the second half of the year is, on average, a bad time to hold low-priced stocks. Then things change, and they change fast.
The last week of December is generally a strong up week for low-priced stocks, with an average return that week of +1.5%. The first week of January is the best week of the year, by far, with an average return of +4%, followed by 5 consecutive weeks of >1% average weekly returns. Things get less exciting after that, but you don't get a loosing week, on average, until week 13 of the year. Returns are generally positive for the remaining first half of the year. Then they go to pot.
So, this the period during the year that you want to be into beaten-down low-priced stocks: 7 weeks from Christmas through mid February. If you do that, you will get 7 of the 11 best weeks of the year for low-priced stocks.
Hope that helps. |
