Shorting stocks: Broken stocks - Analysis Message Board

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Strategies & Market Trends : Shorting stocks: Broken stocks - Analysis

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To: Dale Baker who wrote (1917)	10/21/1998 4:13:00 PM
From: Q.	Read Replies (7) of 2506

re. tax loss selling & January effect: this month's AAII journal (amer assoc indiv investors) has an article that says that studies have shown the effects are biggest in years where the market went down, like this year. This surprised me. The article is intended to tell you how to buy to exploit the January effect, but the data shown are quite useful for our purpose as well. It emphasized the effect is limited to stocks with two attributes: low stock prices and depressed stock prices. It shows a plot of the weekly returns of the S&P low-priced stock index, averaged over 22 years. I pasted it onto my server: dusty.physics.uiowa.edu It looks like * the optimal time to initiate a short is about a week after election day in November * the optimal time to cover is a week or two before the end of the December. The last week of december is a bad week to hold a short (and a good week to be long) since the index is up an average 1.5% that week. The most awsome week, though, is the first week of January, with an average return of 4%, so you definitely don't want to be short low priced stocks that week. Or any of the first 6 weeks of the year for that matter.

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