What comes after the Ho, Ho, Ho! of the Santa Claus rally usually isn't quite as jolly

01/04/2010 8:47 am EST

Focus: STOCKS

Jim Jubak

Founder and Editor, JubakPicks.com

It’s January. Time to think about taking some profits?

Or at least to settle in for a period when U.S. stocks as a whole don't go much of anywhere.

January ends the three month period that for more than 50 years has been on average the best part of the year for U.S. stocks, according to The Stock Traders Almanac.  In his December 29 comments on StockCharts.com John Murphy notes that the 2009 rally looks very similar to the 2003 rally. Both began in March and ran strong through the end of the year. The 2003 rally peaked in the first quarter of 2004 and then corrected into the fall of 2004. As Murphy rightly notes, “There's no guarantee of a repeat performance in 2010. But there is a lot of seasonal precedent for stock rallies to stall in the early months of a new year.”

As you’d expect from a month that ends the strongest three-month period for U.S. stocks, January often means an end to sector rallies.

Again according to The Stock Traders Almanac, gold and silver stocks, semiconductors, and telecom start to show seasonal weakness in December and then pull back in January. That, Murphy, notes, seems to be happening right now with gold and silver peaking at the start of December and semiconductor and telecom stocks starting to pull back from an overbought reading.

Other sectors that start to weaken during January, the Almanac says, are computers, Internet, and technology; healthcare providers; and utilities.

The only sector in the U.S. stock market that typically gets stronger in December is energy. That sector, Murphy’s charts show, moved above its 50-day moving average just before Christmas.

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