Stock Portfolio Updates: December Low Breached, Rebound Encouraging By: Jeffrey A. Hirsch | January 16, 2025 | Email | Print

DJIA closed below its December closing low (page 36 STA 2025) on Friday, January 10, 2025 for the 39th time since 1950. Historically, this event has been associated with further market weakness. And with the Santa Claus Rally (SCR) failing to materialize this year our seasonal indicator antennae have been twitching. But S&P 500 did register a positive First Five Days (FFD) putting our January Indicator Trifecta at 1 for 2 so far with the full-month January Barometer (JB) holding the key. All three Trifecta components are based on the S&P 500 on a closing price basis. 

 

This week’s softer inflation readings from PPI and CPI removed some of the market’s fears that sticky inflation would cause the Fed to hike rates. The 10-Year yield may have peaked here in the near term at least as stocks had their biggest one-day rally since the day after the election. Stocks appear to have found support around the election breakout gap around S&P 500 5775.

 

Reviewing the data associated with both the DJIA December Low indicator and the January Indicator Trifecta we found that there were only four other prior years that had a down Santa Claus Rally, a close below the prior DJIA December closing low and positive First Five Days and/or January Barometer: 1980 both FFD and JB up, S&P 25.8%, 1991 FFD down, JB up, S&P 26.3%, 1993 FFD down, JB up, S&P 7.1% and 1994 FFD and JB both up, S&P -1.5%. 

 

 

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 38 DJIA December low crossings into four groups along with 2025 as of yesterday’s close (January 15) for comparison. With just four occurrences, years like 2025 have been second best on average with 1994 the big drag. 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 quick rebound this year off the December low crossing is encouraging. 

 

 

Using the same groupings to plot DJIA’s 1-year seasonal pattern we see nearly the same outcome. Full-year average performance is the best when one of the two remaining January Indicator Trifecta components is positive. Smaller declines and quick recoveries also lead to better full-year performance figures. Current readings are in line with our bullish forecast for 2025 with a base case of 8-12% and best case of 12-20%. 

 

 

Small cap stocks have unseasonably been in the doghouse since our last stock update. Inflation worries and a rising 10-Year Treasury yield have put pressure on stocks overall but hit small caps especially hard. Over the past five weeks, through yesterday’s close (January 15), S&P 500 fell -2.2% while Russell 2000 dropped -5.5%. Over the same period the entire stock portfolio lost -4.0% excluding dividends, interest from cash, and any trading fees. Mid-caps were responsible for most of the damage, down -9.6% since last issue with small caps dropping -7.9%.

 

Over the past few days Russell 2000 has slightly outperformed DJIA, S&P and NASDAQ, which is encouraging. However, market volatility and uncertainty remain elevated, so we are keeping all stock positions on HOLD until we get through the full month of January and get the final official January Barometer reading. 

 

Our new Ground Floor Stock Pick, Healwell AI Inc (HWAIF), was added to the portfolio on December 19 when it traded below our $1.40 buy limit. The stock has drifted lower with the market over the past five weeks. On December 16 Healwell announced a deal to acquire 100% New Zealand based Orion Health for cash and stock. The two firms share a vision and mission to revolutionize healthcare through AI and data-driven innovation.

 

Orion is a subscription license and services revenue business serving marquee public sector clients globally with data interoperability and healthcare navigation products and services. Their Virtuoso Digital Front Door (DFD) and Amadeus Digital Care Record (DCR) platforms have deep penetration in the public sector with long-term contracts and long-standing government relationships and a broad customer base. Australia and New Zealand, the NHS in the UK and North America are their strongest markets with Canada being their largest regional market. Orion has a 20+ year relationship with Alberta Netcare. 

 

In the December 16 press release Hamed Shahbazi, Chairman of Healwell said, “Orion Health brings significant large enterprise customers, recurring revenues, strong operating margins and free cashflow conversion to Healwell while providing a significant new channel for the distribution of its best-in-class AI products and services.” This transaction is expected to make the company profitable with positive cashflow.

 

However, the deal comes with a financing arrangement that dilutes the stock, and the stock will likely remain under pressure until the deal is finalized. The acquisition has been approved by shareholders and the company expects the deal offering to be completed imminently. Once the financing is closed it should lift a weight off the stock. The acquisition is expected to close in April. A prominent Wall Street firm is expected to launch coverage soon as well. Healwell is on Hold without a stop. 

 

A handful of other stocks in the portfolio were responsible for the bulk of the losses from last issue. In the small cap basket Crexendo (CXDO) is down -7.3%, Northeastern Community Bancorp (NECB) is down -11.2% and Wildan Group (WLDN) is down -18.3% since our recommendation on 10/17/2024. All three remain on Hold.

 

Two big mid-cap losers were stopped out. Powell Industries (POWL), down -17.3% was stopped out on 12/26 at $227.00. Insurer Mercury General (MCY) has been hit hard by concerns the California fires will impact the company drastically. MCY was stopped out on 1/10 at $45.54. Only one large cap position fell prey to the market correction. SPX Technologies (SPXC) was stopped out on 1/7 at $142.54. All other stocks remain on Hold.

 

 

All things considered the Free Lunch Portfolio fared rather well over the past four weeks since we published the list. As usual there are a bunch of winners and several losers, nonetheless the group is up 4.2% as whole since 12/23/2024 vs. DJIA 0.7%, S&P 500 -0.4%, NASDAQ -1.3% and Russell 2000 1.2%. We have updated the stop losses based on our stipulated rules from the December 21, 2024 issue of a 20% trailing stop loss on a closing basis. Between now and the next Free Lunch update please adjust your stop losses accordingly. Returns are based using a purchase price equal to the average of the high and low price on 12/23. We are officially keeping all the Free Lunch stocks on Hold but consider selling them as soon as you have a sizable gain and honor stop losses.

 

Please see the table below for updated advice, stop losses and buy limits where applicable.