Stock Portfolio Update: Free Lunch Fizzles, But Market Gaining Momentum By: Christopher Mistal | January 12, 2023 | Email | Print

Following choppy, but positive readings from our Santa Claus Rally and the First Five Days, the market appears to be gaining additional positive momentum. Today’s inline CPI report which was the sixth consecutive report to show declines is a positive. In stark contrast to the beginning of last year, S&P 500 is up 3.74% as of today’s close. NASDAQ, last year’s biggest decliner is now up 5.11%. Should the market build on these gains, or at a minimum, hold them through the end of January, our January Barometer will be positive and thus our January Indicator Trifecta positive too.

 

 

Looking at the familiar chart above of various pre-election year scenarios that are all in play this year compared to the S&P 500 year-to-date as of today’s close, we can see that the market is already exceeding historical averages. The top bullish scenario, Pre-Election After Midterm Bear, historically averaged 4.65% at the end of January. Whether this scenario plays out for the full year will depend largely on the trajectory of inflation and the Fed. It does appear that the current trend in inflation could allow the Fed to at least pause rate hikes.

 

 

Late 2022 and early 2023 market volatility was not all that kind to the Free Lunch stocks selected in December. Typical small-cap outperformance frequently seen from around mid-December through January and often into February has only really begun to appear the past few trading sessions. As result, only eight of the 38 stocks selected are still active in the Almanac Investor Portfolio, below. All 38 were added to the portfolio using the higher of either their respective average daily prices on December 19 or their minimum buy limit. All suggested guidelines in the Free Lunch Alert were applied to the basket. The suggested 8% trailing stop loss appears to have been too conservative given the level of volatility exhibited by the basket and the market as many of the closed positions are now trading higher.

 

As a reminder, Free Lunch stocks are not intended to be held for long. Should a sizable profit present itself, do not hesitate to lock it in. Although most positions are doing well while the market is rising now, FATE and PIII had lost over half their value since December 19 through yesterday’s close. We will continue to hold the eight remaining positions with the suggested 8% trailing stop loss based on closing prices.

 

 

Over the last five weeks since last update through yesterday’s close (January 11), S&P 500 advanced 1.2% while Russell 2000 climbed 2.1%. Over the same period the entire portfolio slipped 2.0% lower, excluding dividends and any fees. Energy and healthcare related positions were the main drags on performance. Small-cap energy was the weakest as NC and WTI were both stopped out for sizable percentage losses. Other energy-related positions that were stopped out include CEIX in the mid-cap portfolio along with CF and FANG in the large-cap portion of the portfolio.

 

Energy sector weakness appears to be related to recession expectations and warmer than usual winter weather. We will reevaluate the energy sector soon. Improving prospects of a soft landing, a weakening U.S. dollar and the prospects of refilling the Strategic Petroleum Reserve would suggest that demand and price for crude could increase. 

 

At the other end of the performance spectrum there are a few standouts in the portfolio (excluding remaining Free Lunch positions). Axcelis Technologies (ACLS) has broken out of its 2022 trading range to new all-time highs and is up over 25% since November. Perion Networks (PERI) traded at a new 52-week high today and is up over 17% since addition. Steel Dynamics (STLD) also recently traded at a new 52-week high and is up over 12%.

 

All positions in the portfolio are on Hold. Our outlook for the market remains bullish, but we still await confirmation. A positive, full-month S&P 500 gain would make our January Trifecta positive and that would also be encouraging. Please see the table below for updated stop losses and current advice for positions not covered above.