Stock Portfolio Update: Choppy March Trading By: Christopher Mistal | March 14, 2024 | Email | Print

First half of March trading has been mostly in line with its seasonal pattern over the last 21 years. There has been plenty of chop with S&P 500, NASDAQ and Russell 1000 drifting higher while DJIA and Russell 2000 have moved lower. As of today’s close, S&P 500 is up 1.06% thus far this month. Russell 1000 is not far behind, up 0.93%. With today’s (mostly) modest declines, NASDAQ is hanging onto an 0.23% gain, but DJIA and Russell 2000 are both in the red, down 0.23% and 1.15% respectively.

 

 

Looking at the above chart, we see tomorrow is the Ides of March and over the last 21-year period, the market has tended to rally afterwards. Having avoided typical seasonal weakness in February and in early March, this upcoming period of strength could already be factored into the market, and we could experience more chop and churn. Historically, the week after quarterly options expiration in March has been prone to weakness. Plus, the Fed is scheduled to meet next week. Even though it is widely expected that they will not be changing the Fed Fund’s Rate, everyone will still be looking for clues as to when they may begin cutting rates.

 

This AI-fueled bull market has enjoyed solid gains since last October and will likely continue to push higher in the near-term, but momentum does appear to be waning with the pace of gains slowing. With April and the end of DJIA’s and S&P 500’s “Best Six Months” quickly approaching we are going to begin shifting to a more cautious stance. We maintain our bullish stance for 2024, but that does not preclude the possibility of some weakness during spring and summer.

 

 

Per February’s Stock Portfolio update, all remaining positions in the Free Lunch portfolio were closed out using their respective average prices on February 9. The entire basket’s performance through the close on February 9, was essentially unchanged, down –0.42%, since mid-December excluding any dividends and trading fees compared to a 4.0% gain by NYSE Comp and 7.9% by NASDAQ Comp over the same period. Absent a solid January Effect where small-cap stocks solidly outperform large-caps, actively trading Free Lunch stocks appears to be the best strategy when compared to a buy and hold approach. 

 

 

Over the past five weeks through yesterday’s close (March 13), S&P 500 climbed 3.4% higher while Russell 2000 advanced 6.2%. Over the same period the entire stock portfolio advanced 4.5% excluding dividends, any interest on cash and any trading fees. Mid-caps were responsible for the bulk of overall portfolio gain, advancing 10.9%. Large caps were second best, climbing 8.9%. Small caps were the only drag, slipping 5.8% lower.

 

The primary drag on small-cap performance was Virco Manufacturing (VIRC). Shares of VIRC had been performing well, up over 70% on February 8, but were hit hard one day later and failed to recover. VIRC was closed out of the portfolio when it closed below its stop loss on February 13 for a 37.5% gain. There was no apparent news that may have triggered the selloff on February 9, other than the filing of a 13G, statement of acquisition of beneficial ownership by individuals, with the SEC. This form is used to report when a party owns over 5% of a company. Compared to the previous 13G filed, it appears the party had been accumulating shares. The sell-off may have just been the result of aggressive profit taking.

 

 

Jumping into the Mid-cap stocks, Amphastar Pharmaceuticals (AMPH) was stopped out of the portfolio on the last day of February. Earnings appeared to be fair with modest beats of top and bottom-line expectations, but apparently this was not sufficient. AMPH has continued lower with little sign of a bottom yet.

 

Axcelis Tech (ACLS) was also stopped out when it closed below its stop loss on March 13. ACLS did participate in the AI rally early on, but it appears management may have ended the run. After eight straight quarters of solid revenue and earnings growth, they forecast essentially flat to negative performance in their first quarter and similar performance for the full year 2024 compared to 2023 (https://investor.axcelis.com/news-releases/news-release-details/axcelis-announces-financial-results-fourth-quarter-and-full-17). This was the second time ACLS was in the portfolio. The previous trade was a success, having gained over 100%.

 

Super Micro Computer (SMCI) continues to defy gravity and its stellar run pushed it over $1200 last week. As of its close on March 13, it was up 725.1% in the portfolio after selling half of the original position when it first doubled and up 1350.1% from its original price when it was added in November 2022. SMCI is on Hold. Considering recent volatility and bullish momentum, we are removing its stop loss. Should SMCI prove it is a real deal AI company, then it could go significantly higher over the longer run. For those that are more active traders, its near-term volatility could provide ample opportunity.

 

Other notable bright spots in the portfolio over the last few weeks include Reliance Steel & Aluminum (RS) and nVent Electric (NVT). RS is now up 63.5% since addition to the portfolio. As we anticipated, RS did not have any issues beating expectations when it released earnings in February. NVT made a new 52-week high today and was up 40.3% as of March 13 close. RS and NVT are on Hold.

 

All remaining positions not mentioned above are on Hold. Please see table below for updated stop losses.