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, many 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 this year, the stock must have traded at a new 52-week low on Friday, December 15, 2023. To remain on the list, the stock had to still be trading at $1.00 or higher as some trading platforms place additional restrictions on trades when shares are below $1.00. Furthermore, the stock must have traded at least 50,000 shares on average over the past 50 days and have a market cap of at least $50 million. Then, any stock that was not down 30% or more from its 52-week high to the 52-week low reached on Friday was also eliminated. Additionally, we selected stocks that had volume on Friday that was at least 1.5x their average daily volume over the past 50 days. Finally, preferred stocks, funds, splits, special high dividends, and new issues (less than 1-year trading) were eliminated. No stocks from the American Stock Exchange made the cut.
Our suggested guidelines for trading these Free Lunch stocks are to initiate a position at a price no greater or less than 3% of Friday’s closing price and to implement a 15% trailing stop on a closing basis from the purchase price. If the stock closes below 15% 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 18, it will be tracked in the Almanac Investor Stock Portfolios using the trade’s execution price with a 15% trailing stop on closing basis. We will equally weight and allocate a smaller than usual amount to Free Lunch stocks. Historically, the opportune time to enter these positions has been before the end of the year.
If you buy these stocks, please note the following:
1. Consider selling them as soon as you have a sizable 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.