Stocks that fall in December will rise again in January. That idea is often called "the January effect." The theory is that if you buy the right stocks at the end of the year, you will be able to sell them at a profit at the beginning of the new year.

This theory has many adherents, including Bonnie Wachtel, vice president of Wachtel & Co., of Washington, who has tested the idea for the past three years and earned a profit each time.

"Our strategy is intended to identify stocks that are likely to be depressed at year-end from tax selling by investors who have substantial losses in those stocks," Wachtel said. "We purchase shares in December and sell them in January -- hopefully at a quick profit -- when the selling pressure abates."

Wachtel's strategy worked better this year than in the two previous years, perhaps because the market plunge in October caused many stocks to be unusually depressed.

Wachtel's year-end selections gained 24 percent, compared to 15.8 percent last year and 11.2 percent a year earlier. The money was invested for about six weeks.

The results include commissions of 4 cents a share, a more favorable rate than individual investors would enjoy.

For this year's test, Wachtel bought her stocks in mid-December, investing $29,312.50 in the shares of seven companies. In January, she sold those stocks for $37,812.50, a gain of $8,500, or 29 percent. When commissions were deducted, the profit dropped to $7,260 and the gain to 24 percent.

The gains were good news to Bonnie Wachtel's father, Sidney B. Wachtel, founder of their firm, who is a long-time proponent of the "January effect." In fact, as long ago as 1940, Sidney Wachtel wrote to Barron's to report that he had studied 25 years of financial records and had discovered that stock prices rose from December to January in three out of every four years.

Bonnie Wachtel begins her annual test of the "January effect" by studying the listings of the New York Stock Exchange and American Stock Exchange. She looks for stocks selling at $3.50 or below, stocks that are selling close to their 52-week lows and stocks that are far below their highs for the year.

In other words, she is looking for stocks that are really beaten up.

Because of the October crash, those kinds of stocks were easier to find this year, Wachtel said. Several of her stocks were down 80 to 90 percent from their highs for the year.

Wachtel found 13 stocks she thought fit her parameters. They ranged in price from 88 cents a share to $3.13 a share. She put in a series of buy orders, 12.5 cents apart, to be executed as the stocks dropped in price. Thus, if the initial buy order was for $2.50 a share, the next order would be for $2.38 and the next one for $2.25.

The idea was to buy additional shares each time the price of a stock dropped, a technique called "averaging down."

Of the 13 stocks Wachtel selected, she was able to buy only seven. The other six did not get to her designated starting price. But prices generally dropped enough so that she was able to make repeat purchases in five of the seven stocks.

When it came time to sell, Wachtel reversed the process. She started selling at 25 to 50 cents above the highest price she had paid for a stock. And she tried to "average up," by selling additional shares each time the price rose. Thus, if an initial sell order was for $2.50 a share, the subsequent sell order was for $2.75, then for $3 and finally $3.25.

This system of buying into weakness and selling on strength, Wachtel said, also can be used by investors when they are acquiring or liquidating securities being held as long-term investments.

Wachtel's biggest gain on her year-end stocks came from MacGregor Sporting Goods, which rose from $2 to $3.25, an increase of 62.5 percent. Her smallest gain was in MCorp., a Texas bank holding company, which moved up from an average of $2.38 to an average of $2.79, for a gain of 17.5 percent.

The other stocks in the year-end portfolio were Basix Corp; Emerson Radio Corp., Hecks Inc.; IRT Corp., and Munsingwear Inc.

Wachtel acknowledges that there is no guarantee that the "January effect" strategy will work every year. Indeed, she was fearful that because of the pall that has hung over the investment world since October, all of her stocks could be hit by new selling pressures in January. As it turned out, even though most stock averages went up only about 4 percent in January, her carefully selected issues went up much more.

But even with careful stock selection, Wachtel noted, things still could go wrong. Individual stocks could be affected by bad financial news, a sharp downdraft in the overall market or in a specific industry. Buying too early or selling too late all could hamper an investor's effort to capture the "January effect."

So, while Wachtel has proved that strategies based on the "January effect" will work, making them work is always going to be tricky.

The 4-for-1 stock split announced two weeks ago by Citizens Bank & Trust Co. of Riverdale has helped boost its stock price from $86 bid-$92 asked to $96 bid-$99 asked, an increase of about 12 percent.

Coupled with the stock split will be a move to trade Citizens Bank stock in the Nasdaq over-the-counter market, instead of in the so-called "pink sheets," home to unlisted stocks.

Coincidentally, the bank also increased its quarterly dividend from 85 cents to $1.

To obtain the stock split, an investor must own shares by March 9, but the payment date will not be decided until stockholders meet April 6 to authorize additional shares.

Currently there are three million shares outstanding out of five million authorized. But that won't be enough to pay the split, so stockholders will be asked to approve the creation of additional shares.

Once Citizens stock is split and becomes available on Nasdaq, supporters of the stock hope it will attract additional brokerage firms willing to buy and sell the shares, an activity called market-making.

At the moment, market-making in Citizens stock is centered at Johnston, Lemon & Co. in Washington. But the stock may attract more interest when it moves to a post-split price of about $25 and is more visible on the Nasdaq system.

Nova Pharmaceutical of Baltimore started off last week by trading more than 1.2 million shares and by leaping $1.50 to $8.38. The explanation, reports Nina M. Siegler, a biotech analyst at Bradley & Co., in Washington is twofold.

First, the company was the subject of an article in The New York Times business section on the previous Sunday. Second, before the market opened last Monday, the company said it filed an application with the Food and Drug Administration to begin human testing of drugs that can treat skin problems and may be useful for warding off allergies and the common cold.

The potential benefits of the drugs may be a long way off, but the stock soared anyway. Nova ended the week at $8.25.

In a recent study of Nova, Siegler noted that the firm's board of directors has included some prestigious individuals, including former president Gerald Ford; Dr. Charles Edwards, former FDA commissioner; Donald Kendall, former chairman of PepsiCo Inc., and Edward Hennessy Jr., chairman of Allied-Signal Corp.

The company has an equally high-powered scientific advisory board.