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The January Effect: Does it Matter in 2014?

Then, he elaborated in a later episode:

Based on historical price action, there is roughly a 60% chance January will end in negative territory, since its first five trading days were negative, he said. When the month of January is positive, returns in February through December are up an average of 8.65%. When January is negative for the month, the return in February through December only averages 1.65%. 

Worth defended the data, saying that it dated back to 1927 and has been fairly reliable. I have no doubt that it is. I also have a lot of respect for Worth's data and research. I have found other seasonal data that he's used in the past to be useful and accurate. Worth is solid, without a doubt. 

With that being said, I think investors should take this round of probabilities with a grain of salt. 

My reasoning is rather simple: Fundamentals and technicals. I'll begin with the latter. 2013 was a year revolving around slow grinds higher, shallow pullbacks and most notably, new all-time highs. 

According to USA Today, the S&P 500 made 45 new highs last year. What's more fitting than to end the year at a new high? Doing so marked only the sixth time in the index's history. 

But that's precisely why I don't think this year's "January Effect" has as much significance. 

From Dec. 17 through year's end, the S&P 500 rallied roughly 4%. For an index of this size, that's simply a massive move. Consider that in ten trading sessions, the market claimed roughly half of its average annual gain. 

That's the wave we rode into 2014 and that's what investors and market participants are taking a break from. So where are we now? Wednesday marked the coveted fifth trading day of January. 

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