February 2024 Trading and Investment Strategy
January 25, 2024
Market at a Glance - 1/25/2024
By: Christopher Mistal
January 25, 2024
Please take a moment and register for our member’s only webinar, February 2024 Outlook and Update on Wednesday January 31, 2024, at 4:30 PM EDT here:
Please join us for an Almanac Investor Member’s Only discussion of recent market action with time for Q & A at the end. Jeff and Chris will cover their outlook for February, discuss the results of the January Barometer and January Indicator Trifecta, review the Tactical Seasonal Switching Strategy ETF, Sector Rotation ETF, and Stock Portfolio holdings and trades. We will also share our assessments of the Fed, inflation, the "Best Months" as well as relevant updates to seasonals now in play.
If you are unable to attend the live event, please still register. Within a day of completion, we will send out an email with links to access the recording and the slides to everyone that registers.
After registering, you will receive a confirmation email containing information about joining the webinar and a reminder message.
Market at a Glance
1/25/2024: Dow 38049.13 | S&P 4894.16 | NASDAQ 15510.50 | Russell 2K 1975.88 | NYSE 16889.52 | Value Line Arith 9870.74
Seasonal: Neutral. February is in the middle of the “Best Months,” but the market’s historical performance has been lackluster. Election year Februarys are second worst month of the year for DJIA and S&P 500. Massive gains in election year February 2000 by NASDAQ and Russell 2000 boost their historical average gains, frequency of gains is still uninspiring. Presidents’ Day is the sole holiday that exhibits weakness the day before and after.
Fundamental: Mixed?  Q4 GDP advance estimate came in today at a solid, better-than-expected, 3.3%, driven mostly again by consumer spending. Growth is neither too hot nor too cold. CPI has ticked higher to 3.4%, but PPI fell in December. Inflation is still stubbornly above the Fed’s stated 2% target. Corporate earnings forecasts are cooling, and reports have been hit and miss.
Technical: Partial break out. DJIA, NASDAQ 100 and S&P 500 have broken out and closed at new all-time highs. NASDAQ Comp and Russell 2000 have not. Weekly breadth metrics have been tepid which suggests leadership could be struggling to pull the laggards higher. Climbing 10-year Treasury bond yields are also a growing headwind.
Monetary: 5.25 – 5.50%. The Fed meets next on January 30-31. Currently, market expectations for a cut this soon are essentially zero. Expect another reminder on data dependency and an assessment of risks from the Fed at this meeting. The market does appear to be coming to terms with the possibility that interest rates are likely to remain higher for longer. It may also be time to consider that once the Fed starts cutting, the pace could also be slower than expected.
Sentiment: Retreating. According to Investor’s Intelligence Advisors Sentiment survey Bullish advisors stand at 52.9%. Correction advisors are at 30.0% while Bearish advisors numbered 17.1% as of their January 24 release. Compared to mid-December levels, bulls and bears have both retreated while the correction camp has grown. At current levels, sentiment is essentially neutral. It is not in the danger zone or the opportunity zone.
February Outlook: 2024 Bullish But Expect Feb & Q1 Weakness
By: Jeffrey A. Hirsch & Christopher Mistal
January 25, 2024
2023 was a textbook seasonality and cycle year with the market delivering above average gains and closing at the annual highs right on cue at yearend. We expect this bull market to continue and our 2024 Forecast remains on track for our base case scenario of annual gains in the 8-15% range with perhaps more for S&P and NASDAQ. Following last year’s and the fourth quarter’s momentous rally, the market succumbed to early January profit taking and portfolio adjusting. 
January selling has become a regular occurrence in the last 20-25 years and is also typical of election year Januarys. It makes sense if you think about it. Fourth quarters are notoriously strong (see STA 2024 page 82) as are pre-election years, so it would not be a stretch to expect some profit taking in January in general and election year January specifically – at least early in the month.
This caused the Santa Claus Rally and the First Five Days to fail. But stocks have bounced back into positive territory for the most part, pushing DJIA, S&P 500 and NASDAQ 100 to new all-time highs. NASDAQ Composite and Russell 2000 have not hit new ATHs. NASDAQ Composite is only 3.5% away, but R2K is still 23.6% below its November 2021 ATH.
The Russell 2000 small cap benchmark also rallied off its mid-January low but is still under water in 2024. After the big 26% runup from late October to yearend R2K is struggling in the New Year, likely weighed down by higher interest rates and tepid economic growth (GDP) expectations. This is not to say that small cap season is over, but we have our eye on them and if they breakdown further we may issue a sell or put in a stop on the iShares Russell 2000 (IWM) position in the Tactical Seasonal Switching ETF Portfolio.
At this juncture, with the Santa Claus Rally (SCR) and the First Five Days (FFD registering losses this year, our flagship January Indicator Trifecta component, the January Barometer (JB) holds the key. Two weeks ago we detailed how years with down SCRs and FFDs did quite well when the full month JB was green and why the January Barometer works and is so important. We have also been clear on how impactful the 4-year cycle can be, especially when it continues to track the historical pattern as closely as it has been for the past three years. 
Digging deeper into the 4-year cycle we find that when the midterm year was down as it was in 2022, the following pre-election years are up huge just like 2023 – and this is also bullish for the election year. The numbers in the following tables of the S&P 500, NASDAQ and DJIA support our bullish forecast and outlook for 2024. Note some of the down January Barometers in the table as well as softness in Q1. Q1 weakness and election year March lows are also visible in the charts on page 34 in the 2024 Stock Trader’s Almanac. “Incumbent Party Wins & Losses” as well as our Election Year Seasonal Pattern Chart below.
[3 CHARTS: Election Years Are Bullish After Down Midterm Year & Big Pre-Election Year Gains]
[3 CHARTS: Election Years Are Bullish After Down Midterm Year & Big Pre-Election Year Gains]
[3 CHARTS: Election Years Are Bullish After Down Midterm Year & Big Pre-Election Year Gains]
As noted in the “Pulse of the Market” below market internals leave a little something to be desired, which may be indicative of the potential for a continuation of Q1 election year weakness after this late January rebound runs its course. Other than tech, especially mega-cap, and financials some technical consolidation and distribution is afoot. Macroeconomic readings remain supportive with the latest GDP growth numbers out today better than expected and resilient. Inflation continues to mitigate, and the job market is solid. The economy will likely decelerate this year, but the soft-landing scenario is still firmly in play.
Finally, our Election Year Seasonal Pattern Chart highlights the continuation of the 4-year cycle tracking the historical pattern. After dipping into negative territory at the outset of the year S&P 500 has moved back to the Sitting President line in the chart. As we detail on STA 2024 page 26 and related pages, the First Five Months are better when the incumbent wins. As the election appears to be heading toward a rematch of 2020 we can look to the market for clues as to how the election may play out and reverse handicap that to how the market is likely to perform for the rest of the year. As the campaign trail rhetoric heats up follow the market for guidance. Whoever gets elected, one pattern is clear and that is that there have only been Two Losses in the Last Seven Months of Election Years since 1950: 2000 (Tech bust, undecided election) and 2008 (GFC). We remain bullish on 2024.
[Election Year Seasonal Pattern Chart]
Pulse of the Market
Earlier this week DJIA closed above 38,000 for the first time ever (1). DJIA, S&P 500 and NASDAQ 100 have also closed at new all-time highs in 2024, which is encouraging and positive. But the NASDAQ Comp and Russell 2000 continue to lag and have not broken out yet. We suspect the NASDAQ Comp and Russell 2000 lagging performance will continue until interest rates make a move lower. Interest rates could move lower in anticipation of Fed rate cuts, but it may require actual cuts for Russell 2000 to close its sizable underperformance gap.
DJIA’s strong surge off its late-October low was accompanied by a similar move in the faster and slower MACD indicators. When DJIA’s pace of gains began to slow in December, both MACD indicators rolled over and turned negative. Recent DJIA gains have nearly reversed the negative MACD indicators (2). Although we do not use these signals during the “Best Months,” a positive MACD crossover would be a welcome sign that the rally could continue.
[Dow Jones Industrials & MACD Chart]
DJIA (3), S&P 500 (4), and NASDAQ (5) did extend their respective weekly winning streaks to nine in a row. The same New Year profit taking pullback that ended the weekly winning streak also contributed to a negative Santa Claus Rally and First Five Days. Since that down week ending January 5, DJIA, S&P 500 and NASDAQ have resumed their weekly winning ways, and our January Barometer is currently on track to be positive.
Market breadth over the past two weeks has been tepid when compared to the magnitude of the weekly gains. Last week (ending January 19), NYSE Weekly Decliners outnumbered NYSE Weekly Advancers (6) by over 1.6 to 1 while S&P 500 gained 1.2%. NASDAQ Weekly Decliners outnumbered NASDAQ Weekly Advancers by a little over 1.5 to 1 (not shown in table) as NASDAQ advanced 2.3%. These numbers are somewhat of a concern as it suggests participation in the rally is fading and it could soon stall again. Any improvement in the Weekly Advance/Decline metrics would be very much welcome.
The trend of Weekly New Highs and New Lows (7) paints a similar picture as Weekly Advance/Decline numbers. New Weekly Highs have fallen while New Weekly Lows have ballooned from just 16 during the last week of 2023 to 125 last week. We would like to see the number of New Weekly Highs expanding and New Weekly Lows shrinking.
Longer-dated Treasury bond yields have been trending higher in 2024. After falling to 4.00% during the last week of 2023, the 30-year Treasury bond yield (8) has rebounded back to 4.34% last week. So far, most of the collateral damage from this increase in rates has been inflicted upon the Russell 2000, small-cap index. If rates continue to rise, they could become an issue to the remainder of the market.
[Pulse of the Market Table]
February Almanac: Mediocre in Election Years
By: Jeffrey A. Hirsch & Christopher Mistal
January 18, 2024
February is in the middle of the Best Six Months, but its long-term track record, since 1950, is not that impressive. February ranks no better than sixth and has posted meager average gains except for the Russell 2000. Small cap stocks, benefiting from “January Effect” carry over; historically tend to outpace large cap stocks in February. The Russell 2000 index of small cap stocks turns in an average gain of 1.0% in February since 1979—sixth best month for that benchmark. Russell 2000 has had a tough January which could indicate the January Effect may not boost small caps this February.
[Election Year February Performance Mini Table]
A strong February in 2000 boosts NASDAQ and Russell 2000 rankings in election years. Otherwise, February’s performance, compared to other presidential-election-year months, is mediocre at best with no large-cap index ranked better than tenth (DJIA and S&P 500 since 1950, Russell 1000 since 1979). 
[February 2024 Seasonal Pattern Chart]
The first trading day of February is bullish for DJIA, S&P 500, NASDAQ, Russell 1000 and 2000. Average gains on the first day over the most recent 21-year period range from 0.39% by DJIA to 0.75% by Russell 2000. However, after a strong opening day, strength has tended to fade until around the seventh trading day. From there until around the 12-trading day all five indexes have historically enjoyed gains. But those gains have not held through the end of February. Mixed election-year February performance has NASDAQ and Russell 2000 following a similar trajectory to the last 21 years, but with gains holding through the end of the month while the other indexes wander through the month to modest average losses.
Monthly options expiration week had a spotty longer-term record and was improving prior to the arrival of Covid-19 in 2020. Since, the week has been down three or four times depending on the index. S&P 500 and Russell 1000 have been down four weeks straight. The week after was also improving prior to 2020 but has returned to its bearish longer-term tendency.
Presidents’ Day is the lone holiday that exhibits weakness the day before and after (Stock Trader’s Almanac 2024, page 100). The Friday before this mid-winter three-day break can be treacherous and average declines persist for three trading days after the holiday going back to 1980. In recent years, trading before and after the holiday has been more bullish. S&P 500 has been up 10 of the last 13 years on the day before and NASDAQ has been up 7 of the last 11 years on the day after.
[February 2024 Vital Stats Table]
February 2024 Strategy Calendar
By: Christopher Mistal
January 18, 2024
January Barometer: The Basics – Why It’s So Important
By: Jeffrey A. Hirsch & Christopher Mistal
January 11, 2024
First off, we’ve heard some misconceptions out there about how to calculate these indicators and how to calculate market performance in general and our January Indicator Trifecta readings specifically. To clarify, daily, weekly, monthly, and annual performance as well as our indicator readings are not calculated from the open to the close. They are calculated from close to close. This is standard operating procedure for all performance numbers throughout the industry. 
Perhaps not in the day trading or crypto circles, but when you talk about an index’s percent change, gain or loss, it's from the close on one day to the close on the other day. Not after-hours trading, not pre-market trading, not the open to the close, it is the close to the close. For example, the S&P 500 index's performance for 2023, is calculated from the close on the last trading day of December 2022, the official stock exchange market close to the close on the trading day of December 2023: i.e. from the 3839.50 close on 12/30/2022 to the 4769.83 close on 12/29/2023, S&P 500 was up 24.2% for 2023. 
For the calculation for the First Five Days (FFD) Indicator, you take the close and the last trading before the first trading day of the year to the close on the fifth trading day of the year: from the 4769.83 close on 12/29/2023 to the 4763.54 close on 1/8/2023 S&P 500 was down -0.1% so the FFD was down. Using indicators like our January Trifecta is a bit of an art. Readings are not binary. It’s not one-dimensional where it triggers a buy or sell like MACD does with our Best Months Tactical Switching Strategies. It does not signal a bull or bear market has ended or begun. It’s a warning to use other analyses, wits and experience to adjust our outlook and portfolio positions if needed.
Why is the Trifecta so important? With 2023 in the books and the Trifecta scoring another win, since 1950, when all three January Indicators, Santa Claus Rally, First Five Days and the full-month January Barometer (JB) are up, S&P 500 is up 90.6% of the time 29 out of 32 years for an average gain of 17.7%. When one or more of the Trifecta are down the year is up only 59.5% of the time, 25 of 42, for a paltry average gain of 2.9%. 2022 was a perfect example. We did come into the year with a cautious outlook as it was a midterm year where many bear markets occur and bottom. The Santa Claus Rally was positive in January 2022, but FFD and JB were negative and we called the bear in February 2022 and the bottom in October 2022.
JB Holds the Key
As we discuss in our January 8 issue, even though the SCR and FFD were negative, a positive January Barometer could salvage the Trifecta and boost prospects for full-year 2024. Following the previous three occurrences when the SCR and FFD were negative and the January Barometer was positive, S&P 500 advanced three times over the remaining eleven months and the full year with average gains of 15.1% and 19.9% respectively. The December Low Indicator (2024 STA, page 36) should also be watched with the line in the sand at the Dow’s December Closing Low of 36054.43 on 12/6/2023.
At this juncture we remain bullish, and our base case scenario outlined in our 2024 Annual Forecast is still in play. In our forecast, we noted election years are not as strong as pre-election years and we did not expect a repeat of the gains enjoyed in 2023, when the January Trifecta went 3 for 3. There is a sitting president running for re-election which has historically been bullish for the market, the JB could still be positive, and Dow’s December Closing Low has not been breached.
The History of the January Barometer
Devised by Yale Hirsch in 1972, the January Barometer (JB) has registered 12 major errors since 1950 for an 83.8% accuracy ratio. This indicator adheres to propensity that as the S&P 500 goes in January, so goes the year. Of the twelve major errors Vietnam affected 1966 and 1968. 1982 saw the start of a major bull market in August. Two January rate cuts and 9/11 affected 2001. In January 2003, the market was held down by the anticipation of military action in Iraq. The second worst bear market since 1900 ended in March of 2009 and Federal Reserve intervention influenced 2010 and 2014. In 2016, DJIA slipped into an official Ned Davis bear market in January. 2018 was the tenth major error overall as a hawkish Fed, a trade war and slowing global growth concerns resulted in the worst fourth quarter performance by S&P 500 since 2008. Covid-19 impacted 2020 & 2021. Of the 12 major errors, nine have occurred since 2001. Including the eight flat years yields a .726 batting average.
January is host to many important events, indicators, and recurring market patterns. U.S. Presidents are inaugurated and have historically presented State of the Union Addresses in January. New Congresses convene. Financial analysts release annual forecasts. We return to work and school collectively after holiday celebrations. On January’s second trading day, the results of the official Santa Claus Rally are known and on the fifth trading day the First Five Days “Early Warning” system sounds off, but it is the whole-month gain or loss of the S&P 500 that triggers our January Barometer.
And yet for some reason, every February or sooner, if January starts off poorly, our January Barometer gets raked over the coals. It never ceases to amaze us how our intelligent and insightful colleagues, that we have the utmost professional respect for and many of whom we consider friends, completely and utterly miss the point and relentlessly argue the shortcomings of our January Barometer. Again, this year we are not waiting until this happens. Instead, here is why the January Barometer is still highly relevant and why it should not be quickly dismissed.
1933 “Lame Duck” Amendment—Why JB Works
Many detractors refuse to accept the fact the January Barometer exists for one reason and for one reason only: the Twentieth “Lame Duck” Amendment to the Constitution. Passage of the Twentieth Amendment in 1933 created the January Barometer. Since then, it has essentially been “As January goes, so goes the year.” January’s direction has correctly forecasted the major trend for the market in many of the subsequent years.
Prior to 1934, newly elected Senators and Representatives did not take office until December of the following year, 13 months later (except when new Presidents were inaugurated). Defeated Congressmen stayed in Congress for all of the following session. They were known as “lame ducks.”
Since 1934, Congress convenes in the first week of January and includes those members newly elected the previous November. Inauguration Day was also moved up from March 4 to January 20. 
January’s prognostic power is attributed to the host of important events transpiring during the month: new Congresses convene; the President typically gives the State of the Union message, presents an annual budget and sets national goals and priorities. 
These events clearly affect our economy and Wall Street and much of the world. Add to that January’s increased cash inflows, portfolio adjustments and market strategizing and it becomes apparent how prophetic January can be. Switch all of these events to any other month and chances are the January Barometer would become a memory.
JB vs. All
Over the years there has been much debate regarding the efficacy of our January Barometer. Skeptics never relent and we don’t rest on our laurels. Disbelievers in the January Barometer continue to point to the fact that we include January’s S&P 500 change in the full-year results and that detracts from the January Barometer’s predicative power for the rest of the year. Others attempt to discredit the January Barometer by going further back in time: to 1925 or 1897 or some other random year. 
After the Lame Duck Amendment was ratified in 1934 it took a few years for the Democrat’s heavy congressional margins to even out and for the impact of this tectonic governing shift to take effect. In 1935, 1936 and 1937, the Democrats already had the most lopsided Congressional margins in history, so when these Congresses convened it was anticlimactic. Hence our January Barometer starts in 1938. 
In light of all this debate and skepticism we have compared the January Barometer results along with the full year results, the following eleven months results, and the subsequent twelve months results to all other “Monthly Barometers” using the Dow Jones Industrials, the S&P 500 and the NASDAQ Composite.
Here’s what we found going back to 1938. There were only 13 major errors. In addition to the 12 major errors detailed above: in 1946 the market dropped sharply after the Employment Act was passed by Congress, overriding Truman’s veto, and Congress authorized $12 billion for the Marshall Plan.
Using these 13 major errors, the accuracy ratio is 84.9% for the full 86-year period. Including the 9 flat year errors (less than +/– 5%) the ratio is 74.4% — still effective. For the benefit of the skeptics, the accuracy ratio calculated on the performance of the following 11 months is still solid. Including all errors — major and flat years — the ratio is still a decent 67.4%.
Now for the even better news: In the 52 up Januarys there were only 4 major errors for a 92.3% accuracy ratio. These years went on to post 16.2% average full-year gains and 11.6% February-to-December gains.
[January Barometer vs. All]
Let’s compare the January Barometer to all other “Monthly Barometers.” For the accompanying table we went back to 1938 for the S&P 500 and DJIA — the year in which the January Barometer came to life — and back to 1971 for NASDAQ when that index took its current form.
The accuracy ratios listed are based on whether or not the given month’s move — up or down — was followed by a move in the same direction for the whole period. For example, in the 86 years of data for the S&P 500 for the January Barometer, 64 years moved in the same direction for 74.4% accuracy.
The Calendar Year ratio is based on the month’s percent change and the whole year’s percent change: i.e., we compare December 2022’s percent change to the change for full-year 2022. By contrast the 11-month ratio compares the month’s move to the move of the following eleven months. February’s change is compared to the change from March to January. The 12-month change compares the month’s change to the following twelve months. February’s change is compared to the change from March to the next February.
Though the January Barometer is based on the S&P 500 we thought it would clear the air to look at the other two major averages as well. You can see for yourself in the table that no other month comes close to January in forecasting prowess over the longer term.
There are a few interesting anomalies to point out though. On a calendar year basis DJIA in January is slightly better than the S&P. 2011 is a perfect example of how the DJIA just edges out for the year while the S&P does not. For NASDAQ April, September and November stick out as well on a calendar year basis, but these months are well into the year, and the point is to know how the year might pan out following January, not April, September or November. Plus, no other month has a stronger basis for being a barometer. January is loaded with reasons. 
Being the first month of the year it is the time when people readjust their portfolios, rethink their outlook for the coming year and try to make a fresh start. There is also an increase in cash that flows into the market in January, making market direction even more important. Then there is all the information Wall Street has to digest: The State of the Union Address in most years, FOMC meetings, 4th quarter GDP data, earnings, and a plethora of other economic data.
Myths Dispelled
In recent years new myths and/or areas of confusion have come to light. One of the biggest errors is the notion that our January Barometer is a stand-alone indicator that could be used to base all your investment decisions for the coming year on. This is simply not true, and we have never claimed that our January Barometer should or could be used in this manner. Our January Barometer is intended to be used in conjunction with all available data deemed relevant to either confirm or call into question your assessment of the market. No single indicator is 100% accurate so no single indicator should ever be considered in a vacuum. Our January Barometer is not an exception to this.
Another myth is that the January Barometer is completely useless. Those that believe this like to point out that simply expecting the market to be higher by the end of the year is just as accurate as the January Barometer. Statistically, they are just about right. In the 86-year history examined in this article, there were 25 full-year declines. So yes, the S&P 500 has posted annual gains 70.9% of the time since 1938. What is missing from this argument is the fact that when January was positive, the full year was positive 86.5% of the time and when January was down the year was up 44.1% of the time. These are not the outcomes that pure statisticians prefer, but once again, our January Barometer was not intended to be used in a vacuum.
Stock Portfolio & Free Lunch Updates: January Effect Fading
By: Christopher Mistal
January 11, 2024
When we prepared the monthly January Almanac Issue in late December, we noted that January has been weaker in election years and January’s overall historical strength has been fading due to declines in thirteen of the last twenty-four years. January’s recent weakness, since 2000, also appears to be having an impact on the “January Effect.” In the 2024 Almanac on pages 112 and 114 the January Effect is defined as the tendency for small-cap stocks to outperform large-cap stocks from around mid-December through mid-February (mid-month uses the 11th trading day close of the month). In the Almanac we use the Russell 1000 as the large-cap benchmark and the Russell 2000 as the small-cap benchmark. Small-cap outperformance occurs when the Russell 2000 gains more than the Russell 1000 or when the Russell 2000 declines less than the Russell 1000 from mid-December through mid-February.
[January Effect Performance table]
In the above table we have the full history of the “January Effect” along with the performance before and after 2001. This year as of the close on January 10, 2024, is included in the table, but is not used in Average, Median, and % Higher stats as the full period is not complete. When comparing the years 1979-2001 to 2022-2023 there has been a decline in the average small-cap advantage and frequency of occurrences. The average advantage has slipped from 3.41% to 1.10% while frequency has fallen from 81.8% to 63.6%. The “January Effect” is still happening, it is just not as pronounced or as consistent as it once was.
One likely reason is the notable weakness in January that also began in 2000. Another likely contributing factor is the rise of exchange-traded funds (ETFs) and index-based investing styles. Concentration of market leadership is another potential factor. The Magnificent 7 (Apple, Alphabet, Microsoft, Amazon, Meta, Tesla and Nvidia) is the current example. Before the “7” it was FAANG, FANG, FAAMG, MAMMA and going back even further, the Four Horsemen (late 90s and again in 2007). Undoubtedly there are even more possible reasons. Nonetheless, the Free Lunch strategy has historically benefited from the “January Effect” and languished when it did not materialize.
Free Lunch Update
Free Lunch stocks got off to a reasonable solid start with 10 of the 13 positions posting a gain through the market’s close on January 2. [We provided a quick update in our member’s only webinar on January 3. The update is on slide 20 here.] One stock was unchanged and two were down. Overall, the entire basket had an average gain of 8.9%. Since that update chopping trading has weighed on Free Lunch stocks. Average performance across the entire basket has slipped to 1.8% (open position average is 6.0%), five positions have been stopped out (four for at a loss) and two of the remaining eight positions were modestly negative as of yesterday’s close. NASDAQ listed positions have outperformed NYSE positions and the entire basket was up 1.8% compared to a 1.3% NYSE gain and 1.1% NASDAQ Comp advance as of the close on January 10.
Two standouts are 374Water (SCWO) and Largo (LGO). Prior to getting stopped out, SCWO traded from $1 per share on December 20, to over $2 on December 27. A potential 100%+ gain in four trading sessions. As is often the case, those gains faded nearly as fast as they were produced as SCWO traded as low as $1.06 on January 5. LGO’s gain arrived at a slower pace and could be ending as shares declined over 7% today. 
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. The exact definition of a sizable profit is yours to decide. We will continue to hold the eight remaining positions with the suggested 15% trailing stop loss based on closing prices. The market has been choppy, but it still appears to be consolidating sizable Q4 gains. 
Stock Portfolio Updates
Over the past four weeks through yesterday’s close (January 10), S&P 500 climbed 1.6% higher while Russell 2000 gained 1.2%. Over the same period the entire stock portfolio advanced 1.9% excluding dividends, any interest on cash and any trading fees. Small-cap portfolio positions performed the best, up 14.9% on average. Mid-caps were second best, up 1.7%, while Large caps itched 0.3% higher. Of the 20 new trade ideas presented in November, 14 are higher (10 up double digits), 6 are in the red and the average gain of all 20 is 11.0%.
The top performing trade from last November is still Virco Manufacturing (VIRC) up 78.5% at yesterday’s close. Mama’s Creations (MAMA) is second best from the November basket, up 37.6%. Gains by VIRC and MAMA were the primary driver of the double-digit gain in the Small-cap portfolio over the past four weeks. VIRC and MAMA are on Hold.
Amneal Pharmaceuticals (AMRX) is another standout from the November basket, up 31.5%. Aside from the solid number of new products brought to market last year, AMRX moved from the NYSE exchange to NASDAQ in late December. With the move it was added to the NASDAQ Comp and NASDAQ Biotechnology indexes. AMRX is on Hold.
At the other end of the performance spectrum, Grand Canyon Ed (LOPE), was hit by a lawsuit from the FTC in late-December. The initial selloff turned a modest gain in the portfolio into a loss. The outcome of the suit is not likely to be known anytime soon and when that happens the most likely outcome will just be a fine. LOPE is on Hold.
All existing positions in the portfolio are on hold. Please note that some stop losses have been updated. The New Year is off to a choppy start and January has historically been softer in election years, but thus far there has not been any meaningful change in fundamental data. Employment data is still reasonable firm, inflation’s sluggish cooling trend continues, and economic growth is holding up. Fed rate cut expectations are adjusting after getting overly optimistic.
Click here to view full size…
[Almanac Investor Stock Portfolio – January 10, 2024 Closes]
First Five Days Negative, Trifecta 0 for 2
By: Jeffrey A. Hirsch & Christopher Mistal
January 08, 2024
Despite a strong advance today, S&P 500 failed to fully recover its losses from last week and as of today’s close, is down 0.1% year-to-date and thus our First Five Day (FFD) early warning system is negative. Since 1950, the previous 26 down FFD were followed by 14 up years and 12 down with an average gain in all years of just 0.3%. The last negative FFD was in 2022 when S&P 500 declined 1.9%. In 2022, S&P 500 went on to decline 5.3% in January and thus our January Barometer (JB) was negative. For 2022, S&P 500 was down 19.4%.
[Down SCR and Down FFD Table]
Last week the Santa Claus Rally (SCR) was negative, and today the FFD was negative. At this juncture there are two possible outcomes remaining for our January Indicator Trifecta. Our JB can either be positive or negative. The historical results of both are visible in the following tables. 
[Up SCR, Down FFD & Up January Barometer table] [Up SCR, Down FFD & Down January Barometer table]
A positive JB would certainly boost prospects for full-year 2024 even after today’s down FFD and last week’s negative SCR. Following the previous three occurrences when the SCR and FFD were negative and the January Barometer was positive, S&P 500 advanced three times over the remaining eleven months and for the full year with average gains of 15.1% and 19.9% respectively. The December Low Indicator (2024 STA, page 36) should also be watched with the line in the sand at the Dow’s December Closing Low of 36054.43 on 12/6/2023.
At this juncture we remain bullish, and our base case scenario outlined in our 2024 Annual Forecast is still in play. In our forecast, we noted election years are not as strong as pre-election years and we did not expect a repeat of the gains enjoyed in 2023, when the January Trifecta went 3 for 3. There is a sitting president running for re-election which has historically been bullish for the market, the JB could still be positive, and Dow’s December Closing Low has not been breached.
ETF Trades: Taking Some Profits & Holding
By: Christopher Mistal
January 04, 2024
For those who were unable to attend the member’s only webinar on Wednesday, the slides and video recording are available here (or copy and paste in a new browser window: https://www.stocktradersalmanac.com/LandingPages/webinar-archive.aspx). With the arrival of the New Year, Jeff recapped the market’s performance in 2023 and then shifted focus to our 2024 Annual Forecast and January 2024 outlook. Despite the market’s performance thus far in 2024, and the negative Santa Claus Rally (SCR), the year and January are still young having only completed three trading days out of the total 252 scheduled. Absent a positive SCR, the historically most bullish outcome for our January Indicator Trifecta (page 20 of 2024 Almanac) is no longer in play.
However as we attempted to point out in yesterday’s email Issue, Santa Fails to Call, But Trifecta 2 Out of 3 Ain’t Bad, all is not lost as the First Five Days (FFD) and our January Barometer (JB) could still be positive. Plus, historically when any two of our three January indicators have been positive, full-year performance has still been respectable. This would represent the most bullish outcome still available for our January Indicator Trifecta.
In response to some questions emailed to us and not to overlook or downplay the potentially bearish scenarios for the January Indicator Trifecta that have not yet occurred we present the following three tables. The first is all Down SCRs since 1950 with FFD, JB, Feb, Last 11 Month and Full Year Performance. Based solely upon a down SCR we see a drop in average performance, but the frequency of gains remains respectable. Should the FFD come in negative as well, (Down SCR & FFD table) average performance slips even further, but here again it remains positive, and the frequency of gains is still solid. Finally, the worst-case outcome, SCR, FFD and JB are all negative. Average performance turns negative, and frequency of gains falls to just one better than 50/50.
The most bullish January Indicator Trifecta scenario is no longer in play for this year, but the worst case has not yet occurred. Since we place a greater emphasis on the outcome of the January Trifecta than the individual indicators alone, we remain bullish and our base case scenario for 2024 is still in play. Current weakness still appears to be profit taking and repositioning for the New Year after a solid pre-election-year Q4 rally. We should also not overlook Januarys historical tendency to be softer in election years.
[January Trifecta Tables: Down SCR Combinations]
New January Sector Seasonality
Only one new sector seasonality begins in January. Computer Tech has historically declined from the beginning of the month through the beginning of March. Over the past 25 years, the sector has declined an average of 5.05%, but over more recent periods weakness has not been as pronounced, averaging just 1.05% over the last 10 years and 3.58% over the past 5 years. More aggressive traders could choose to establish a short position correlated to the sector’s historically weak period, but we will officially pass as the potential profit does not currently appear to outweigh the risk.
Since we are passing on the Computer Tech sector’s short trade, we will continue to hold the corresponding position in iShares US Technology (IYW).
Sector Rotation ETF Portfolio Updates
Three sector seasonalities have traditionally ended in December, Gold & Silver, Semiconductor, and Telecom. We did not hold a position in gold or silver. With the market firmly in rally mode last month we continued to hold corresponding positions in iShares Semiconductor (SOXX) and iShares DJ US Telecom (IYZ). Now that the market is taking a pause, and the 10-year Treasury yield has crept higher we are going to close out SOXX and IYZ. Sell SOXX and IYZ. For tracking purposes SOXX and IYZ will be closed out of the portfolio using their respective average price on January 5.
Two out of three of last month’s new trade ideas targeting strength in copper and oil have been added to the portfolio. Global X Copper Miners (COPX) and SPDR Energy (XLE) were both added on December 12 when they traded below their buy limits. As of the close on January 3, COPX and XLE were up 7.1% and 6% respectively. COPX and XLE are on Hold
The final new idea from last month, United States Copper (CPER) has not yet traded below its buy limit and can still be considered on dips below it. We will remain patient with CPER as a modestly stronger US dollar is putting some mild pressure on copper.
All other positions in the Sector Rotation Portfolio are on Hold. Please note stop losses have been adjusted to account for recent gains.
[Almanac Investor Sector Rotation ETF Portfolio – January 3, 2024 Closes]
Tactical Seasonal Switching Strategy ETF Portfolio Updates
After a solid pre-election year Q4, positions in the Tactical Seasonal Switching Strategy portfolio are now up 9.3% on average as of the close on January 3. Our Seasonal MACD Buy Signal did come early in October and per the strategy positions were established. SPDR DJIA (DIA) and iShares Russell 2000 (IWM) are the best performing positions, both up over 10%. QQQ, IWM, DIA, and SPY are on Hold. We still see further upside potential for this “Best Months,” but would not be surprised to see some volatility this month.
[Almanac Investor Tactical Seasonal Switching Strategy ETF Portfolio – January 3, 2024 Closes]
Disclosure note: Officers of Hirsch Holdings Inc held positions in DIA, IWM, QQQ, and IWM in personal accounts.
Santa Fails to Call, But Trifecta 2 Out of 3 Ain’t Bad
By: Jeffrey A. Hirsch & Christopher Mistal
January 03, 2024
On the heels of last year’s momentous rally, the market is showing some signs of weakness causing the Santa Claus Rally to fail to materialize. Profit taking in January has become more commonplace in the last 25 years or so and January is notably softer in election years like 2024. Some profit taking is understandable following the massive rally from the end of October ranging from just over 16% for DJIA and S&P 500 to 19.9% for NASDAQ and 26.2% for Russell 2000 at their respective recent highs just before yearend. But the selling over the past few days is notable and a warning sign.
Defined in the Stock Trader’s Almanac, the Santa Claus Rally (SCR) is the propensity for the S&P 500 to rally the last five trading days of December and the first two of January with an average gain of 1.3% since 1950. This indicator was discovered and first published by Yale Hirsch in the 1973 edition of the Almanac.
The lack of a rally can be a preliminary indicator of tough times to come. This was certainly the case in 2008 and 2000. A 4.0% decline in 2000 foreshadowed the bursting of the tech bubble and a 2.5% loss in 2008 preceded the second worst bear market in history. Down SCRs were followed by flat years in 1994, 2005 and 2015, and a mild bear that ended in February 2016. Of the 15 down SCRs since 1950, 10 years have been up and 5 down, but the average gain is a measly 5.0%. As Yale Hirsch’s now famous line states, “If Santa Claus should fail to call, bears may come to Broad and Wall.
[Down SCR]
With the Santa Claus Rally a no show we will be watching for a positive First Five Days (FFD) and January Barometer (JB), the second and third legs of our January Indicator Trifecta. Since 1950 there have been only three occurrences when SCR was down and both the FFD and JB were positive. Two out of three of those years were up over 20% and 1994 was a flat -1.5% with a 14.8% average gain on all three. 
Since there are only three down SCR years with up FFDs and JBs we present to you the other years with one of the Trifecta components down and the other two up. Of these 18 years 14 years were up and 4 were down with an average gain of 7.9%. So, as we said 2 out of 3 ain’t bad when it comes to our January Indicator Trifecta. 
Remember: if these seasonal indicators are negative and the market does not rally as it normally does during this time, we will likely shift to a less bullish posture – if not outright bearish. 
[2 out of 3 Table]