2018 Free Lunch Update: 4X Market Return By: Christopher Mistal | January 08, 2019 | Email | Print

As a reminder, our “Free Lunch” (page 112 of Stock Trader’s Almanac 2019) strategy is a short-term trade that takes advantage of several yearend and New Year phenomena. Our research has shown that NYSE stocks making new 52-week week lows in mid-December, primarily due to yearend tax-loss selling, tend to outperform the NYSE through mid-February. These stocks are selected ahead of the Santa Claus Rally (page 114 STA19) and approximately near the start of the January Effect (page 110 STA19). 

 

Many of the stocks selected for the “Free Lunch” trade are down for good reason. Declining revenue and shrinking profits are most common amongst these names while others may have run into legal or accounting trouble. Once a name pops, profits should be taken and conversely if a name continues lower it should be cut loose quickly.

 

Overall, this year’s basket is handily outperforming the NYSE Comp. Following the guidelines issued with the basket, the basket had a 21.5% average gain at yesterday’s close compared to 5.2% for the index. Over four times the performance of the NYSE Comp over the same time period. On average, NYSE-listed stocks are performing best, up 23.6% (including closed positions). NASDAQ listed stocks, the largest portion of the list, are also performing well, up 20.6% on average.

 

All of these stocks were added to the Almanac Investor Stock Portfolio using suggested guidelines for buy limits and stop losses. Due to the strict 8% trailing stop loss, updated daily using the position’s closing price, nine positions have been stopped out already. This basket appears to have some life left in it. We will officially continue to hold the remaining open positions in the Stock Portfolio with the previously mentioned 8% trailing stop loss. A complete update of the Almanac Investor Stock and ETF Portfolios will be posted in our next regularly scheduled Alert on Thursday, January 10, emailed after the close.