Filter THIS! Tax loss profits.

Today”s one thing is tax loss profits.

We need to start talking about the “January Effect.” It refers to downtrending stocks that suddenly rally after year-end, when tax loss selling pressure subsides. That is motivated by taxpayers wanting to utilize the paper loss in one stock they own, to offset the gain in another.

Sounds simple, right? It should be, but it”s a little more complicated than that. And I suspect it will be even more complicated in the marijuana sector.

No matter how complex, January Effect candidates will always have a unique advantage to other stocks. That is knowing well in advance exactly when at least one reason to sell will suddenly disappear. You can literally set your clock to it.

The January Effect is simple for one immutable law of the markets: Price is a function of supply (selling) and demand (buying). 

Price can fall because of falling demand, but also because supply is rising. When the supply is based on artificial reasons — for tax considerations instead of for investment quality — Price can suddenly stop falling and reverse up when selling slows, without any increase in demand.

Motivations behind supply and demand differ among people, seasons, times of day… The more varied the motivations, the more stable the market. Occasionally, many market participants are doing the same thing for the same reason. You”ve seen this effect most commonly as a reaction to a headline. But that”s over and done with in the blink of an eye.

The same principle is applied in slow motion when it comes to tax loss selling. It will only become more widespread as the deadline nears: December 31.

Through the years, of course, increasingly more sellers realized that waiting until the last minute often meant getting the lowest price. Hurriedly expending the supply This led to earlier bottoms among many tax loss candidates, so the “January” rally started coming earlier. So much earlier, that the rally enticed sellers to return for another round.

So, the January Effect is a simple concept of artificial supply suddenly ending. It was complicated a little by some investors accelerating their timing, which changed the cycle. And now the marijuana sector will add another degree of complexity: November”s elections.

That extra “January” effect rally has been peaking over the years into late-October / early-November. Marijuana stocks will on the one hand attract tax loss selling by diversified investors wanting to shelter other profits or income. Meanwhile, various marijuana initiatives around the country will presumably be motivating buyers. Perhaps a favorable reaction to passing the initiatives will be short-lived as it attracts the next round of tax loss selling.

As we keep our eye on these influences, keep in mind that not all tax loss sell-offs recover, especially marijuana stocks. The good news is that the January Effect may be very good for the marijuana sector — and possibly this year. The bad news is that it won”t apply to all marijuana stocks. The other bad news is that it won”t prevent the eventual winners from declining further first. We”ll be monitoring for opportunities among sector leaders that are fulfilling downside objectives. As for others, a sudden end to tax loss selling pressure won”t change their business prospects, or that their patterns are targeting zero.

This phenomenon isn”t limited to lower-priced stocks. Don”t hesitate to suggest any stock to review that has been declining through the year, and probably is trading below the cost basis of a majority of its shareholders. That”s the basis for even considering a January Effect candidate. The actual chart objective and technical indicator action determines the rest. I”ll maintain coverage on a growing list of stocks with their projected supports, triggers and targets.

Filter THIS! …is a missive that tells you one thing, the most important thing, if you had to filter your view of today”s marijuana stocks price action through just one thing — okay, sometimes two — what would that one thing be?