Stock Portfolio Updates: Rally to Resume Soon
By: Christopher Mistal
December 14, 2017
Over the long-term, it has not been all that unusual for December to start off mixed and for DJIA, S&P 500 and NASDAQ to be unchanged or even down at the half-way point. This longer-term pattern can be seen in the following chart using data from 1950 through 2016 (1971 to 2016 for NASDAQ). Some of the weakness around mid-month is likely due to tax-related selling and some early end-of-year portfolio restructuring. 
Historically weakness has generally come to end just after mid-month around the eleventh trading day and on the fifteenth trading day DJIA, S&P 500 and NASDAQ are generally back on track with a solid rally to wrap up the year. From its mid-month low to the last trading day of the year, NASDAQ has gained over 2% on average. S&P 500 and DJIA have averaged around 1.5%. Based upon December’s long-term pattern, look for the rally to resume between now and early next week.
[Long-Term December Seasonal Pattern Chart]
Stock Portfolio Update
Over the four weeks since last update, S&P 500 climbed 3.8% higher while Russell 2000 climbed 4.1% as of yesterday’s close. The Almanac Investor Stock Portfolio’s blend of cash and long positions climbed a modest 0.4% over the same time period excluding dividends and any trading costs. Our Large-Cap portfolio performed best, up 2.2% followed by Mid-Caps up 0.1%. Small-Caps were essentially unchanged, 0.04% higher.
In the Small-Cap section of the portfolio, Rudolph Tech (RTEC) was added when it traded below its buy limit on November 29. RTEC is a semiconductor equipment maker and has moved lower along with the broader semiconductor sector. The recent pullback in RTEC, and in semis, appears to be a consolidation of gains and nothing more. RTEC can still be considered at current levels up to its buy limit.
Cohu Inc (COHU) is another semiconductor equipment supplier. Like RTEC, COHU has weakened recently, but still has not traded below its buy limit. COHU’s buy limit has been raised slightly and a new position can be considered on dips.
Other positions in the Small-cap portfolio remain on Hold.
Mid-cap position performance was damaged by Argan Inc (AGX). The position was down last update and plunged through its stop loss on December 7. It was closed out of the portfolio the following day at $45.98. Earnings were the catalyst for the plunge. Year-over-year revenues were up, but down from the previous quarter while earnings also declined.
As of today’s close, there are five new positions, KBH, LGIH, MTH, ORBK and PATK, in the Mid-cap portfolio that still have not been filled. Buy limits have all been raised for these stocks. Also note, Patrick Industries split 3 for 2 on December 11.
Per last update, the short position in Telsa Inc (TSLA) was covered on November 17 for a modest 6.1% gain. TSLA clearly has lost the momentum it had at the start of the year, but it also refuses to trade under $300 per share for long. Management has numerous innovative ideas that could eventually prove profitable, but the along the road it faces increasing competition along with steep expenses for executing its strategy.
Arista Networks (ANET) and UnitedHealth (UNH) continue to be top performers, both currently up over 130% including profits on the sale of half positions. ANET and UNH are on Hold.
Absent any real dip in the major indexes over the past four weeks, there are six open positions in the Large-cap portfolio that can still be considered on dips, FAF, G, HII, LII, SNX and TOL. Buy limits and stop losses have been adjusted for these stocks.
All other positions in the Stock Portfolio are on hold. Please see following table for current advice, buy limits and stop losses.
[Almanac Investor Stock Portfolio – December 14, 2017 Closes]
Disclosure Note: At press time, officers of the Hirsch Organization, or accounts they control held positions in, ANET, BUSE, CCS, HSY, MHO, RMCF and SMG. They did not hold any positions in the other stocks mentioned in this Alert, but may buy or sell at any time.