The "January Effect" has become a catch-phrase for the overall generally good performance of stocks in the month of January. It is not a perfect seasonal indicator, and in many years throughout history the January effect has not resulted in early year stock price appreciation. Therefore, buying blindly is unlikely to bring fantastic returns, but buying stocks that are already strongly trending may give them even more of a boost should the January effect take hold in 2013.

SEE: January Effect Revives Battered Stocks

Visa Inc. (NYSE:V) has been in a very strong uptrend since June, defined by a rising trend channel. The stock recently bounced off the low of the channel signaling a continuation of the trend, and a rise to the upper channel band currently near $155. Technically, the stock looks strong regardless of whether the January effect occurs or not. If the January effect does kick in, through January the upper band rises to the $159 region - which is the target for the end of January if we have a strong start to the year. A drop to the lower channel band - currently $145 - indicates the trend is weakening.

SEE: Technical Analysis: Support And Resistance

V uptrend January effect

Discover Financial Services (NYSE:DFS) is currently testing its July-to-current trendline. If the pullback respects the $39 area, look for a pop higher in late December and in early January as the price moves toward the upper band of the trend channel. The upside target is $45 to $46 near the end of January if 2013 starts off on a bullish note. If the price drops below $39, it's a sign the trend is weakening. A drop below support at $38 indicates the trend has likely reversed.

DFS uptrend January effect

HDFC Bank (NYSE:HDB) has been on a tear since June when it traded at a low of $27.30. Currently, the stock is trading within a large trend channel and moving toward support. Support is at $40 to $39. If that area holds up to any selling pressure that might arise, look for the uptrend to continue. The target is the upper band of the channel, or the $45 to $46 region come late January. A drop below $39 warrants some caution but is not a sell signal. Meanwhile a drop below prior lows at $37 and $36 is a sign the trend has likely reversed, at least for the short-term.

SEE: Support & Resistance Basics

HDB uptrend January effect

Lions Gate Entertainment (NYSE:LGF) saw a dazzling rise in anticipation of the "Hunger Games" movie in early 2012, but then declined through April. The stock's current uptrend began in May and was contained within a well-defined, slightly narrowing trend channel. The stock just tested channel support at $15.30, and so far the region is holding. As long as the price stays above $15, look for it to rise toward the upper channel band at $18 to $18.50 come late January. A drop below $15 warrants caution, while a drop below the November low of $14.58 signals the uptrend is likely over for now.

LGF uptrend January effect

The Bottom Line
When buying strong stocks, it almost doesn't matter whether the January effect occurs or not. While a boost and overall lift in stock prices helps almost all bulls, trading strong stocks is one of the safer places to be even if January turns out to be dreary. The price is also close to support levels in these stocks, which means risk can be kept relatively small. Look for the trend channels to continue and hopefully you'll reap an early year profit, but if a break to the downside occurs, don't rely on the January effect to save you.

Charts courtesy of

At the time of writing, Cory Mitchell did not own any shares in any company mentioned in this article.

Related Articles
  1. Chart Advisor

    ChartAdvisor for November 27 2015

    Weekly technical summary of the major U.S. indexes.
  2. Chart Advisor

    Pay Attention To These Stock Patterns Playing Out

    The stocks are all moving different types of patterns. A breakout could signal a major price move in the trending direction, or it could reverse the trend.
  3. Chart Advisor

    Now Could Be The Time To Buy IPOs

    There has been lots of hype around the IPO market lately. We'll take a look at whether now is the time to buy.
  4. Chart Advisor

    Copper Continues Its Descent

    Copper prices have been under pressure lately and based on these charts it doesn't seem that it will reverse any time soon.
  5. Technical Indicators

    Using Pivot Points For Predictions

    Learn one of the most common methods of finding support and resistance levels.
  6. Chart Advisor

    Watch These Stocks for Breakouts

    These four stocks are moving within price patterns of various size, shape and duration, and are worth watching for a breakout
  7. Trading Strategies

    How to Trade In a Flat Market

    Reduce position size by 50% to 75% in a flat market.
  8. Chart Advisor

    ChartAdvisor for November 20 2015

    Weekly technical summary of the major U.S. indexes.
  9. Chart Advisor

    Like Ranges? These Are Stocks to Consider

    Whether you want to trade the price fluctuations within a range, or await a breakout, here are four stocks for you.
  10. Chart Advisor

    Is This The Beginning Of A Downtrend In Home Builders?

    Falling lumber prices and weakness on the charts of home builders suggest that the next leg of the trend could be downward.
  1. What are some of the most common technical indicators that back up Doji patterns?

    The doji candlestick is important enough that Steve Nison devotes an entire chapter to it in his definitive work on candlestick ... Read Full Answer >>
  2. Tame Panic Selling with the Exhausted Selling Model

    The exhausted selling model is a pricing strategy used to identify and trade based off of the price floor of a security. ... Read Full Answer >>
  3. Point and Figure Charting Using Count Analysis

    Count analysis is a means of interpreting point and figure charts to measure vertical price movements. Technical analysts ... Read Full Answer >>
  4. What assumptions are made when conducting a t-test?

    The common assumptions made when doing a t-test include those regarding the scale of measurement, random sampling, normality ... Read Full Answer >>
  5. How are double exponential moving averages applied in technical analysis?

    Double exponential moving averages (DEMAS) are commonly used in technical analysis like any other moving average indicator ... Read Full Answer >>
  6. How do you know where on the oscillator you should make a purchase or sale?

    Common oscillator readings to consider making a buy or sale are below 20 or above 80, respectively. More aggressive investors ... Read Full Answer >>

You May Also Like

Trading Center