Most of the myths regarding market moves are not worth the paper they're printed on. That said, one old wives' tale worth noting, and even following, is the January effect.

For whatever reason, small-cap stocks do indeed outperform their larger brethren during the month of January.

I recently provided a list of 5 Stocks for the January Effect. On the list was a former high-flyer that lost enough market value to now qualify as a small-cap stock -- NutriSystem (NASDAQ: NTRI).

NutriSystem captured the investor imagination with its unique solution to weight loss and weight management. The company's home delivery of prepackaged meals promised ease of use with results.

Given the huge audience for such a solution, NTRI presented investors with a great growth opportunity. Even though it took a few years to catch on, investors eventually got the idea.

NutriSystem became a darling of the momentum crowd in 2005. In the span of a year and a half, the stock moved from the single digits to above $80 per share. Coinciding with a big marketing program, revenue and investors seemed to grow in tandem.

That's all well and good, but at some point valuation does matter. That time usually comes when growth or results fail to meet elevated expectations. For NTRI, that started to happen in mid-2007.

In no time flat the stock lost more than half its value as the momentum crowd fled. The stock has been trading on a flat line around $15 per share for most of 2008.

Remember the January Effect? A phenomenon where stocks, especially small caps, rally from the end of December, through the first week of trading in January, as investors are able to buy into names that had been sold in order to recognize tax losses. This has been a forgotten strategy for investors over the last few years, but my hunch is that we will see it return stronger than ever this year. Why? Because some of these stocks have gotten crushed due to the market volatility since the summer, and their big losses were exaggerated by tax loss selling. Here are two picks that are poised to gain from the January Effect:

Federal Home Loan Mortgage Corp. (NYSE: FRE) - while not a small-cap, this stock nonetheless should be in store for a spike. The government-sponsored enterprise creates liquidity in the residential mortgage market by guaranteeing, purchasing, securitizing and investing in such loans. FRE has lost more than have of its value recently, and certainly part of that was caused by sellers looking for a loss.

Ceragon Networks (NASDAQ: CRNT) - The WiMax company has been in a downturn ever since it had trouble doing a secondary offering, which ended up being priced just before the announcement that Sprint/Nextel (NYSE: S) was exiting this WiMax network. Investors should look at this with a bit of perspective, as Intel (NASDAQ: INTC) and Nokia (NYSE: NOK) are all still forging ahead with the technology. My buddy Zack Miller has a nice analysis of this. Look for Ceragon to have a strong bounce over the next few weeks.

Aaron Katsman is the lead Portfolio Manager and Managing Director of America Israel Investment Associates, LLC. and Senior Editor of IsraelNewsletter.com. Disclosure: Writer has no position in any stock mentioned as of 12/19/07.