I think tax loss selling is irrelevant related to DYP. Why would anyone sell DYP to capture the loss on their 2010 taxes and limit themselves from buying it back for 30 days? Selling for the tax loss would mean risking the accounting issues are resolved within the next 30 days and loosing the upside potential.
I'm considering tax gain selling... Sell for taking a small profit on my 2010 taxes and purchase the next day to maintain my position for the "big gain" when the accounting issues are resolved.
You could say that about any stock that is down hard, why would someone sell in case they resolve their issues within the 30 days before it can be bought back, but people still do it. Also, I am not saying everyone is going to buy back the shares, I am saying many people are selling DYP at this time of year for tax reasons and that will end by Jan. The point is there will be less people selling DYP shares in Janu which means less supply at these price. Less supply of shares being sold means higher prices. BASIC.
Here is a refresher course in the January effect regarding tax loss selling for those here that need it, this article just came out yesterday: