I think one of the reasons is the tax sell off. In order to be able to claim it as a loss you can't buy within 30 days or something along those lines. So if they're selling in Dec they wait til 30 days up to start buying again.
Analysts generally attribute this rally to an increase in buying, which follows the drop in price that typically happens in December when investors, engaging in tax-loss harvesting to offset realized capital gains, prompt a sell-off.
January Effect Explanations Beyond tax-loss harvesting and repurchases, as well as investors putting cash bonuses into the market, another explanation for the January effect has to do with investor psychology. Some investors believe that January is the best month to begin an investment program or perhaps are following through on a New Year's resolution to begin investing for the future.
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