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Many hedge funds were burned playing the January effect in early 2008. Stocks got creamed, particularly consumer discretionary, and especially gaming. Gaming stocks were pounded to the tune of down 22% in the first two weeks of 2008. See the first chart.

Here is why January 2009 could bring more holiday cheer for the gaming bulls than 2008:

• Short interest is sky high now (2nd chart)
• Investors are much more bearish this time per the BBI (2nd chart)
• Consumer discretionary looks good technically
• Low gas prices bring some optimism
• Real interest rates near zero
• Fire sale valuations

Gaming stocks have had a decent run lately but are still down 70-80% on the year. The industry faces a myriad of issues in 2009 but bearishness is unprecedented, valuations are low, and some markets appear to be stabilizing. The macro croupier may have dealt the pessimists a bad hand, if only temporarily, through the unprecedented use of short term monetary (near zero interest rates) and fiscal stimuli.

A January rally may indeed be in the cards. What a difference a year makes.

"January effect" was not effective in 2008
Investors are much more bearish heading into 2009