Free Lunch & Stock Portfolio Updates: Luke Warm Reception to this Year’s Basket
By: Christopher Mistal
January 22, 2015
Let’s begin by giving credit where credit is due. Thank you Mario Draghi and all members of the European Central Bank for today’s broad market rally. Your pledge to support the economies of Europe through the purchase of more than $1 trillion euro worth of debt is the most aggressive action taken to date in an effort to stoke inflation and (hopefully) growth. Clearly this announcement has been well-received. After spending most of this month in the red, S&P 500 and NASDAQ are now positive and DJIA is just a few points away.

[DJIA Daily Bar Chart]
[S&P 500 Daily Bar Chart]
[NASDAQ Daily Bar Chart]

Today’s surge has also lifted DJIA, S&P 500 and NASDAQ back above their respective 50-day moving averages. Furthermore, stochastic and relative strength indicators have clearly turned up and MACD is confirming the momentum shift with a solid buy signal. Now let’s see if the market can follow through on today’s move in coming days and weeks.

Stock Portfolio Updates 

From the last update in mid-December, through yesterday’s close, S&P 500 was 0.3% higher. Russell 2000 edged 0.4% higher over the same period while collectively the three Almanac Investor Stock Portfolios slipped 1.1%. Although the Mid-Cap portfolio was the worst performing, down 2.5%, it was the Small-Cap portfolio that delivered the bulk of the overall portfolio’s loss. This is due to the substantially heavier theoretical cash allocation to small-cap stocks compared to mid- and large-caps. 

Much of the Small-cap portfolio’s losses were the result of the addition of 12 Free Lunch stocks. Of the 17-stock basket, 15 had market caps under $1billion at the time of selection. Ambassadors Group (EPAX), Tecumseh Products (TECU) and Tandem Diabetes Care (TNDM) never traded below their respective buy limits during normal trading hours and were not added to the Small-Cap portfolio. Cellcom Israel (CEL), Whiting USA Trust (WHX) and Walter Energy (WLT) turned out to be duds and selling pressure from late last year never abated. CEL, WHX and WLT all closed below their stop losses and have been closed out of the portfolio. Remaining Free Lunch positions (“Presented Date” is listed as 12/21/14, the date the basket was emailed) are on Hold as many are showing nascent uptrends on their charts. Collectively these positions were just barely above breakeven at yesterday’s close. Based upon research in Stock Trader’s Almanac 2015 (pages 106, 110 and 112), these “Free Lunch” stocks have until approximately mid-February to perform. We will remain patient, yet vigilant with the remaining positions.

Per last update, partial profits were taken on JetBlue Airways (JBLU) and United Continental Holdings (UAL). One third of JBLU was sold on December 22 when the gain first reached 40% and one third of UAL was sold using it closing price from December 11. Continue to hold remaining shares. The majority of crude oil’s decline is most likely over, but these airlines are only beginning to realize the benefits of the lower price.

Recent market volatility also hit the Large-Cap portfolio. Icahn Enterprise (IEP), Sunoco Logistic (SXL) and Steel Dynamics (STLD) were stopped out. IEP and SXL were directly impacted by crude oil’s collapse while slowing global growth concerns dragged STLD lower. Crude oil may have reached its bottom on January 13 at $44.20, but the full impact of its 60-plus percent decline is likely not fully factored into oil-related stocks yet. If oil does not briskly rebound, like many expect, oil stocks are likely to resume the move lower that they started last year.
Thus far, 2015 has not been all that favorable to the market. There was no Santa Claus Rally and until today’s gains, most of January has been spent in the red casting a pall on full-year prospects. For this reason, all positions in the portfolio are on Hold

Click image to view full size…
[Almanac Investor Stock Portfolios – January 21, 2015 Closes]

Disclosure Note: At press time, officers of the Hirsch Organization, or the accounts they control, held positions in ARCO, CCIH, CEL, EPAX, HSOL, IEP, IMGN, OGXI, OXM, SJT, SSYS, STLD, SXI, UNH, WLT and WOR.