90% of your success as a trader should come from the work, research and effort you put in OUTSIDE of market hours. That’s why I recommend traders do post analysis of their work and study market history. Since 2013 was a very strong year for the markets, we could possibly see some profit taking in January as investors put off 2013 tax gains by selling in January 2014. I remember this happened in other recent strong years.

1999 – This was one of the strongest years in stock market history. The Nasdaq 100 ($QQQ) was up +92% that year. In other words, the AVERAGE stock in the index doubled. Although the market didn’t top until March 2000, I specifically remember some leaders topping in January, especially the stocks that had +500% (or greater) gains for the year. According to my notes, CMRC, CMGI, $YHOO, $QCOM, and OCLI all topped in January. Some of these companies are not around today, but you can go back and look at the ones that are to see examples of what I am talking about.

2003 – This was my best year as a trader. I was up +237% that year. We just came out of a prolonged 3-year Bear Market, and I remember all the stars aligned perfectly for a new uptrend. The economy was in full recovery mode, we had clear leadership, and there was non-stop institutional buying from March-December 2003. Many stocks acted amazingly well that year. Go back and study the charts of $SINA $NTES $SOHU $SNDK $TASR and $MNST to see what I am referring to. The Nasdaq Composite was up +50% that year and I remember thinking there would be some profit taking in 2004. 2004 began with a classic 6-9 month Bear Market with 3 legs down until we bottomed in August. Again, go back and study the charts. Those were two of the more textbook years (both up and down) that I have seen in a while.

2009 – This was another amazing year which came after a prolonged 18-month Bear Market. Many leaders of the past few years came out of this new uptrend. Examples include $AAPL $BIDU $PCLN $NFLX $MA. Again, although 2010 was a decent year for the markets, we still saw profit taking in January 2010 after the strong performance in 2009.

So what should one do now? As always, know your timeframe, have a plan, and make your own decisions! I can’t stress enough that you should NEVER blindly follow anyone on Twitter (including myself). I am merely writing this blog post because in my 18 years of trading I have noticed a pattern of some profit taking in January, especially after very strong years. I am not saying it will happen again, I simply prefer to be a little proactive when it comes to both my buying AND selling decisions, rather than following the herd both in and out.

2013 was a great year for the US markets. I still feel that we are headed much higher over the next 12-24 months due to the strong liquidity. In fact, I think there are about 10 stocks that will be up 50-100% this year. If you have a good entry point in your positions and a longer-term timeframe, you might have to sit through a little volatility if this pattern repeats. As a trader, I will most likely reduce my exposure over the next few days, especially because I have been so aggressive over the past few months. If we continue higher, great! I still have exposure and will participate. If we see some profit taking, I will at least have locked in some gains and have some cash ready to be put to work when needed. Good luck trading!

I can be reached at: jfahmy@zorcapital.com.

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