Stock Portfolio Updates: DJIA December Low Crossing Weighs By: Christopher Mistal | March 09, 2023 | Email | Print

Last week on Tuesday, February 28, DJIA closed below its December closing low (page 36 STA 2023) for the 38 time since 1950. Historically, this event has been associated with further market weakness. But this year we also had a bullish January Indicator Trifecta. Reviewing the data associated with both indicators we found that there were five other bullish January Indicator Trifecta years where DJIA closed below its December closing low: 1952, 1966, 1996, 2006, and 2018. Of these five year, 1966 and 2018 suffered full-year declines. Back in 1966, the U.S. was getting pulled deeper into the Vietnam War and it was also the end of the post-WWII secular bull. 2018 was a mildly challenging year that really came unraveled in its fourth quarter as the market pushed back on the Fed and interest rate increases. 1952, 1996 and 2006 saw the DJIA rally on to full-year average gains of 16.9%. S&P 500 averaged 15.2% in those three years.

 

 

In the above chart of the 30 trading days before and the 60 trading days after DJIA closed below its December closing low we have split the previous 37 DJIA December low crossings into four groups along with 2023 through today’s close (March 9) for comparison. With just five occurrences, Trifecta years have been second best on average with 1966 dragging the average lower. The best performance was observed by the years that had the smallest decline after DJIA closed below its December low. Years with greater than a 10% decline after the cross had the weakest performance. Most importantly, it appears the quicker DJIA recovers after crossing below its December low, the better its performance was. DJIA’s recent decline this week has undone last week’s quick rebound.

 

 

Using the same groupings to plot DJIA’s 1-year seasonal pattern we see nearly the same outcome. Full-year performance for January Indicator Trifecta years is modestly weaker as 1966’s full-year decline pulls averages even lower, but Trifecta years remain positive. We also see smaller declines and quick recoveries lead to the best full-year average performance.

 

DJIA’s move back below its December closing low today is a concern. The longer the condition persists the more of a concern it will be. Tomorrow’s job’s report, next weeks CPI and PPI and finally the Fed later this month will likely be key to where DJIA goes next. Time remains for a swift recovery.

 

 

Last month’s weakness brought about the end of the Free Lunch via triggering the suggested 8% trailing stop loss based upon daily closing prices. Allot (ALLT) was closed out first after closing below its stop on February 15. Intrepid Potash (IPI) was closed out six days later on the 21. Compared to last month, ALLT and IPI slipped 2.6% lower on average. With the closure of these last two positions, Free Lunch 2022 has officially come to an end.

 

 

Over the last four weeks since last update through yesterday’s close (March 8), S&P 500 declined 3.1% while Russell 2000 fell 3.2%. Over the same period the entire portfolio advanced 1.4%, excluding dividends and any fees. The only portion of the portfolio that did not contribute to the gains over the last four weeks were the final two Free Lunch stocks. Our small-cap stocks advanced 0.5%, large-caps added 0.7%, and mid-caps jumped 8.0%.

 

Super Micro Computer (SMCI) had a great four weeks and significantly aided mid-caps jumping over 20% higher. Prior to today’s retreat, SMCI did trade at a new all-time high. Gains appear to be driven by solid earnings and rising estimates. SMCI is on Hold.

 

A close second to SMCI over the same period, Perion Network (PERI) was up 18.1% from last update through its close on March 8. PERI traded at a new 52-week high earlier in the week and is climbing back toward its all-time highs last traded in 2013. Revenue and earnings have been growing and analysts appear to be jumping on the bandwagon with several upgrades in February. PERI is on Hold.

 

Two other notable standouts in the mid-cap portfolio are Axcelis Technologies (ACLS) and Permian Resources (PR). ACLS also traded at a new all-time high today prior to the market retreating while PR traded at a new 52-week high last week above $12. ACLS is benefiting from quietly growing revenues, earnings and its market cap which have gathered positive analyst coverage outside of this organization. PR appears to be navigating the energy market’s choppiness with better than average success. ACLS and PR are on Hold. 

 

Broad weakness in healthcare and energy did persist into March. Cross Country Healthcare (CCRN) was stopped out on February 23 and EOG Resources (EOG) was stopped out on February 17. Warmer than average winter weather and fading pandemic spending are still the most plausible reasons for recent declines. Recession concerns weighing on energy also seem reasonable, but historically healthcare has been a defensive sector as people still need and seek care regardless of the state of the economy. 

 

All positions not previously mentioned are on Hold. March has gotten off to a tough start as interest rate concerns have swelled. Tomorrow’s jobs report will be the first of three key data points for the Fed to digest at its next meeting in two weeks. Next week’s CPI and PPI are the others. Our sense is that the jobs report could be a bit stronger than expected as people appear to be reentering the workforce. As for CPI and PPI, research and casual observation would suggest softer than expected readings, but there are no guarantees that seasonal adjustments and updates to data collection and calculation processes won’t have the opposite effect.