Publication Note: On Thursday, December 23nd we will deliver to you our last regularly scheduled Alert of 2021 covering the January 2022 Almanac and Strategy Calendar. Our next email will be on January 4, 2022 (Santa Claus Rally results). However, if market conditions warrant an interim update, one will be sent. Happy Holidays and Happy New Year!
Our “Free Lunch” strategy is purely a short-term strategy reserved for the nimblest traders. Traders and investors tend to get rid of their losers near yearend for tax loss purposes, often driving these stocks down to bargain levels. Our research has shown that NYSE stocks trading at a new 52-week low on or about December 15 will usually outperform the market by February 15 in the following year. We have found that the most opportune time to compile our list is on the Friday of December quarterly options and index futures expiration – AKA Triple Witching Day.
This strategy takes advantage of several year-end patterns and indicators. First, the stocks selected are usually technically, deeply oversold and poised for a bounce, dead cat or otherwise. Second, all of the stocks are of the small- and mid-cap variety that will benefit from the January Effect which is the tendency for small-caps to outperform large-caps from mid-December through February. Lastly, the strategy spans the usually bullish Santa Claus Rally and the First Five Days of January.
To be included in this list, the stock must have traded at a new 52-week low on Friday, December 17, 2021. To remain on this year’s list, the stock had to still be trading at $1.00 or higher as several online trading platforms place additional restrictions on a trade when shares are below $1.00. Furthermore, the stock must have traded at least 100,000 shares on average over the past 20 days and have a market cap of at least $100 million, but not greater than $10 billion. Then, any stock that was not down 50% or more from its 52-week high to the 52-week low reached on Friday was also eliminated. Additionally, since the number of stocks making new 52-week lows on December 17, 2021 was large we screened for stocks that had trading volume on Friday that was 2x the average daily volume over the past 20 days on NYSE, AMEX and NASDAQ. No China domiciled companies are included on the list. Finally, preferred stocks, funds, splits, special high dividends and new issues (SPAC and/or other mergers) were eliminated. No stocks from the American Stock Exchange made the cut.
Our suggested guidelines for trading these Free Lunch stocks is to initiate a position at a price no greater or less than 3% of Friday’s closing price and to implement an 8% trailing stop on a closing basis from your execution prices. If the stock closes below 8% of the execution price or a subsequent high watermark, then the stock would be closed out of the portfolio. If any of these stocks trade in a window between -3% to +3% of Friday’s closing price on Monday, December 20, it will be tracked in the Almanac Investor Stock Portfolios using the trade’s execution price with an 8% trailing stop on closing basis.
If you buy these stocks, please note the following:
1. Consider selling them as soon as you have a significant gain and utilize stop losses.
2. The stocks all behave differently and there is no automatic trigger point to sell at.
3. Standard trading rules from the Almanac Investor Stock & ETF Portfolios do not apply for these stocks.
4. We think you should be out of all of these stocks between the middle of January and the middle of February.
5. Also, be careful not to chase these stocks if they have already run away.
DISCLOSURE NOTE: Officers of the Hirsch Organization do not currently own any of the shares mentioned. However, we may participate in the Free Lunch Strategy.