Being a successful stock trader is not just about making good stock picks; you have to know underlying trends influence your picks. Here are three year-end trends that are happening now and you should keep in the back of your mind.
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Trend #1: Tax Loss Selling
Because you’re allowed to deduct your stock markets losses from your annual income, thus paying less taxes, investors sell their worst performing stocks into the year-end in order to utilize those tax losses for the current year. If you have losses now and wait to sell anytime in early 2015, you can’t use those tax losses until you pay next year’s taxes by April 2016. This opens the door to some supreme value deals on stocks that are oversold not due to anything the companies did but due to tax reasons only.
Trend #2: The January Effect
This is the important-to-know seasonality trend where beaten down stocks often bounce and rebound sharply in January as there’s no more tax loss selling to keep the stock prices low. Stocks trading between $1-5/ per share that have been hammered over the past year, especially towards year-end, spike 20 percent to even 50 percent in a few hours or days during the month of January every year. And because seasoned pros know about this, they often start buying these near-bankrupt companies in December in order to get in before the big January spikes.
Trend #3: Window Dressing
Just as stocks that have been crushed get sold for tax purposes, the strongest stocks of the year get bought, thus making them even stronger. This year-end buying has nothing to do with how good the companies are; Wall Street just wants to appear more knowledgeable and successful to those who pay their salaries. Using this knowledge, I don’t bet against the strongest stocks nor do I buy the weakest stocks heading into year-end although I am always on the lookout for potential value buys given the January Effect and will buy beaten down stocks that begin spiking for seemingly unknown reasons.
Things I Liked:
1.Bill Cosby is learning celebrity status does not protect him the serious charges being leveled against him—good more celebrities need to learn this!
2.The Cosby controversy proves there are 2 courts, one legal courts and the other, perhaps more important to celebrities, the court of public opinion.
3.The U.S. stock market is simply on fire; I’m having my best trading year ever as I am now up 170 in 2014!
I know hundreds of traders who are making six and seven figures this year, many more than ever in the past, thank you bull market!
All my favorite teams, the Knicks, The NY Giants and Notre Dame football are having horrendous seasons, I love sports, but this is just depressing.
For more financial advice, go to timothysykes.com.