December is the number three Dow Jones Industrials and S&P 500 month since 1950, averaging gains of 1.6% and 1.5% respectively. It’s also the third-best NASDAQ (since 1971) month. It is the second-best month for Russell 2000 (since 1979). The market rarely falls precipitously in December and a repeat of 2018 does not seem highly likely this year. In 2018, DJIA suffered its worst December performance since 1931 and its fourth worst December going all the way back to 1901. When December is down it is usually a turning point in the market—near a top or bottom. If the market has experienced fantastic gains leading up to December, stocks have consolidated in the first half of the month.

 

 

In the last eighteen election years, December’s ranking changes modestly to #2 for DJIA and S&P 500, NASDAQ’s slips to fifth place. Small caps, measured by the Russell 2000, have had a field day in election-year Decembers. Since 1980, Russell 2000 has lost ground just once in eleven election-year Decembers. The average small cap gain in all eleven years is a solid 3.5%. The Russell 2000’s single loss was in 1980 when the Prime Rate was 21.5%.

 

 

Trading in December is holiday-inspired and fueled by a buying bias throughout the month. However, the first part of the month tends to be weaker as tax-loss selling and yearend portfolio restructuring begins. December’s first trading day leans bearish for S&P 500 and Russell 1000 over the last 21 years. A modest rally through the sixth or seventh trading day also has fizzled going into mid-month. It is around this point that holiday cheer tends to kick in (and tax-loss selling pressure fades) propelling the indexes higher with a pause near month-end. Election year Decembers follow a similar path, but with noticeably larger historical gains in second half of the month by Russell 2000.

 

Small caps tend to start to outperform larger caps near the middle of the month (early January Effect) and our “Free Lunch” strategy is served from the offerings of stocks making new 52-week lows on Quad-Witching Friday. An email Issue will be sent prior to the market’s open on December 23 containing “Free Lunch” stock selections. The “Santa Claus Rally” begins on the open on December 24 and lasts until the second trading day of 2025. Average S&P 500 gains over this seven trading-day period since 1969 are a respectable 1.3%.

 

This is our first indicator for the market in the New Year. Years when the Santa Claus Rally (SCR) has failed to materialize are often flat or down. Six of the last seven times our SCR (the last five trading days of the year and the first two trading days of the New Year) has not occurred were followed by three flat years (1994, 2004 and 2015) and two nasty bear markets (2000 and 2008) and a mild bear that ended in February 2016. Santa’s no show earlier this year was likely due to temporary inflation and interest rate concerns that quickly faded. As Yale Hirsch’s now famous line states, “If Santa Claus should fail to call, bears may come to Broad and Wall.”

 

December Quad Witching Week is more favorable to the S&P 500 with Monday up fifteen of the last twenty-four years while Quad-Witching Friday is up twenty-six of the last forty-two years with an average 0.18% gain. The entire week has logged gains twenty-nine times in the last forty years. The week after December Quad Witching is the best of all weeks after Quad Witching for DJIA and is the only one with a clearly bullish bias, advancing in thirty-two of the last forty-two years. Small caps shine especially bright with a string of bullish days that runs from December 18 to 24.

 

Trading the day before and the day after Christmas is generally bullish across the board with the greatest gains coming from the day before (NASDAQ up thirteen of the last seventeen). On the last trading day of the year, NASDAQ has been down in eighteen of the last twenty-four years after having been up twenty-nine years in a row from 1971 to 1999. DJIA, S&P 500, and Russell 1000 have also been struggling recently and exhibit a bearish bias over the last twenty-one years. Russell 2000’s record very closely resembles NASDAQ, gains every year from 1979 to 1999 and only six advances since.

 

 

 

Please take a moment and register for our members’ only webinar, December 2024 Outlook and Update on Wednesday December 4, 2024, at 2:00 PM EST here:

 

https://attendee.gotowebinar.com/register/6130125213971323480      

 

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 December, review the Tactical Seasonal Switching Strategy ETF, Sector Rotation ETF, and Stock Portfolio holdings and trades. We will also share our assessments of the economy, Fed, inflation, post-election year 2025 prospects 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.

 

 

11/21/2024: Dow 43870.35 | S&P 5948.71 | NASDAQ 18972.42 | Russell 2K 2364.02 | NYSE 19968.30 | Value Line Arith 11461.26

 

Seasonal: Bullish. December is the second month of the Best 6 & 8 Months and of the best consecutive three-month span, November to January. December is the third best month of the year for DJIA, S&P 500 and NASDAQ, second best for Russell 2000. In presidential election years, December is #2 for DJIA and S&P 500, #5 NASDAQ, and the best Russell 2000 month of the year. Watch for early signs of the “January Effect” around mid-December (STA p. 112 & 114). Free Lunch (STA p. 116) is scheduled to be served before the market opens on December 23. Our Santa Claus Rally (STA p. 118) begins on December 24 and runs until January 3, 2025.

 

Fundamental: Improving? GDP has softened modestly but remains around 3%. The seasonally adjusted unemployment rate has retreated from its recent peak of 4.3% to 4.1%. Corporate earnings have been generally firm. Inflation is an issue stubbornly remaining above 2%, but it has cooled enough for the Fed to begin loosening monetary policy. Prospects for lower taxes and less regulation are increasing. Historically, any combination of lower taxes, less regulation, and/or falling interest rates has supported the market. 

 

Technical: Consolidating. After breaking out to new all-time highs following Election Day, DJIA, S&P 500, and NASDAQ retreated. Support levels have held and all three are still above their respective 50-day moving averages. Recent Russell 2000 strength brought it close to its now 3-year-old all-time closing high. If today’s gains hold and momentum builds, the consolidation could be over or at the least near its end. After which, additional new market highs are anticipated. A breakout by Russell 2000 would be bullish and further strengthen the case for additional highs.

 

Monetary: 4.50 – 4.75%. The Fed is in a rate-cutting cycle and short-term interest rates are heading lower. At what pace and just how low are open for debate. As of November 21, the CMEGroup’s FedWatch Tool has the odds of a December rate cut at 55.9%. Not exactly conclusive, but it does suggest another cut before yearend remains likely. We expect the Fed will remain data dependent but will also likely attempt to avoid upsetting the market at the same time. Overall, monetary policy is a positive for the market.

 

Sentiment: Seasonal Cheer. According to Investor’s Intelligence Advisors Sentiment survey Bullish advisors stand at 60.0%. Correction advisors are at 21.7% while Bearish advisors number just 18.3% as of their November 20 release. Overall sentiment remains bullish, and historically it is not unusual for it to remain so through yearend supported by holiday cheer, yearend bonuses, and special one-time dividend payments.

 

With the Thanksgiving Holiday occurring next week we wanted to take a moment to express our gratitude to all our readers and subscribers. We are especially thankful for our loyal long-time members. Thank you for entrusting us with helping you manage your family’s wealth and portfolios. We also appreciate many of you taking the time to join us every month on our member’s only webinar. We look forward to the Q&A session where we get to hear what’s on your mind and what concerns you. That exchange of ideas is invaluable to us. We wish you all a happy and healthy holiday season.

 

Before we dive into this month’s outlook we wanted to share a few publication notes. As you can see, we are publishing the December Outlook today instead of the usual time on the last Thursday of the month as that is Thanksgiving this November. Next week we will publish the December Almanac on Tuesday ahead of the holiday. 

December Schedule:

• Monthly member’s only webinar December 4

• ETF Issue December 5

• Stocks Issue December 12

• 2025 Annual Forecast/January Outlook December 19

• Free Lunch Stock Picks December 21

• January Almanac December 23

• Office Closed December 24 to January 1 

(Unless there is a major market or world event that warrants a Special Report)

 

Well, late October proved to be a great time to buy stocks once again and the post-election rally was even more powerful than we anticipated. The expeditious election decision was clearly a relief for Wall Street, which added to the bullish seasonal forces and macro trends. The brief consolidation that followed mid-month was attributed to many things by market pundits, but it sure lined up well with our typical November chart, especially the election-year November seasonal pattern.

 

This seasonal mid-November weakness sets up the usual yearend run and reaffirms 2024 is set to exceed our 2024 Annual Forecast best case scenario. We expect more new all-time highs before yearend. We expect the Russell 2000 index of small cap stocks to finally eclipse its November 8, 2021, closing highwater mark and log its first new all-time high in over 3 years. It was within striking distance of this level intraday a few times during the week after the election. This would be a bullish sign for us as this would suggest a further broadening of the bull market that has just entered its third year. 

 

As the S&P 500 and NASDAQ Composite are on pace to log their second year in a row of greater than 20% gains, we’ve brought back the earlier version of our S&P 500 Election Year Seasonal Pattern. We’ve removed the negative “Open Field’ line and put back the “Sitting President” line. Even though sitting President Biden bowed out the fact that President-elect Trump was president before makes this election year unique with Mr. Trump being a pseudo sitting president. 

 

 

S&P 500 currently sits right at the upper level of our Annual Forecast best case scenario range of 15-25%. 2024’s performance to date even exceeds the “Top Q1 Election Years” line. At this juncture we would not be surprised if the market outperformed the average December and ended up tacking on another 4-5% or more, pushing the index over 6200 for the year or upwards of a 30% gain for 2024. This also reinforces the fact that the current 4-Year Presidential Election Stock Market Cycle remains on track and intact.

 

 

We will go deeper into the prospects for next year in our 2025 Annual Forecast released on December 19 and update the 2025 Outlook in the 2025 Stock Trader’s Almanac on pages 10-11. That was written over five months ago before President Biden dropped out of the race. However, it still appears to be valid. As you can see in the 4-Year Cycle Chart above post-election years have been much better in the post-WWII era. 

 

 

A lot has happened since the election. The Trump team has been moving fast with cabinet picks that promise to shake up the status quo. It remains to be seen how many actually take office. Matt Gaetz withdrew himself from consideration to run the Justice Department. Others may not make it as well, but many likely will. So, the debate on The Street has been how the second Trump administration will impact the markets, the economy and the global stage. Wall Street’s initial response has been favorable with the S&P 500 posting its biggest one-day gain (+2.5%) in two years on the day after the election. 

 

From our experience we know that all presidents come short of delivering on most of their campaign promises. Even though Mr. Trump comes from an unorthodox background for a president and has a history of being a disrupter, the intrenched bureaucracy of Washington DC and government in general will likely prevent him from doing all he has said he will do. Giving him the benefit of the doubt we would say at best he will be able to accomplish 50% of his campaign promises.

 

In reality, he will have only two years to implement his agenda and policy initiatives before the midterm elections. This suggests that the Trump administration (and the Republican Congress) will hit the ground running, in fact they already have. This tendency of more conservative presidents to implement their agendas quickly drives the “Post-Election Year Performance By Party” stats on page 28 of the 2025 Almanac that show post-election years are worse for republicans while midterm years are worse for democrats. Though the recent history is more favorable for republican post-election years, including the 25.1% gain in 2017, Trump’s first post-election year.

 

Then there’s the question of whether 2025 is the fifth year of a Trump presidency or more like a first year. Despite what he learned in his first term he will be hard-pressed to steamroll his agenda through the intrenched bureaucracy of DC. And if his string of cabinet picks is any indication, Trump 2.0 promises to be much different than his first term.

 

Many of his policies will be supportive of the market and business and likely stir the animal spirits. He may not have the burden of needing to appease the country to shore up his reelection bid, but its pretty clear he would like to leave a legacy of economic prosperity, a powerful bull market and global stability. We expect there will be successes and missteps that will result in a choppy, yet positive post-election year with market gains in the 8-12% range.

 

 

While we expect above average gains for December and more new all-time highs, the month opens a little soft with zero clearly bullish days in the first week of the month often attributed to tax loss selling. This in turn sets up the early “January Effect” when small cap stocks tend to outperform large caps over the last two weeks of the year into mid-January. (Perhaps this is when the Russell 2000 will log its first new all-time high in three years.) 

 

Our Free Lunch strategy (2025 STA p 116) targets early-December tax-loss selling and year-end seasonal strength. The Free Lunch Basket will be compiled after the close on December 20, 2024, AKA Quadruple Witching Day, and emailed to subscribers over the weekend on Saturday, December 21. 

 

November is the first month of the Best Six Months of the year and the Best Three Months Span and so far, so good. December is the third best month of the year for DJIA, S&P and NASDAQ and #2 for Russell 2000 and yearend is frequently when the market hits new highs. 

 

And of course, there’s the “Santa Claus Rally,” (2025 STA p 118) invented and named by Yale Hirsch in 1972 in the Almanac. Often confused with any Q4 rally, it is defined as the short, sweet rally that covers the last five trading days of the year and the first two trading days of the New Year. Yale also coined the phrase: “If Santa Claus should fail to call, bears may come to Broad and Wall.” This is the first leg of our January Indicator Trifecta (2025 STA p 20) which includes the “First Five Days” (2025 STA p 16) and the full month “January Barometer” (2025 STA p 18), also invented and named by Yale Hirsch in 1972. This January Trifecta helps us affirm or readjust our outlook. When we hit this Trifecta and all three are positive S&P is up 90.6% of the time with an average gain of 17.7%.

 

 

Post Election Day market exuberance that fueled DJIA’s surge to new all-time highs above 44,000 has faded (1) and DJIA has modestly retreated over the past week and a half. Despite the recent pullback, DJIA remains on track for solid full-month November gains. As of today’s close, (November 21), DJIA is up 5.0% with five trading days to go. For the year, DJIA is up a respectable 16.4% with more likely as DJIA remains in an uptrend even though volatility has increased. DJIA is above its 50- and 200-day moving averages and all three point toward higher levels.

 

At the start of trading today, both the faster and slower moving MACD indicators applied to DJIA were negative (2), confirming the recent loss of positive momentum. Today’s gains have begun to reverse the negative signal on both MACD indicators. Should the typical year-end holiday cheer kick in and hold, both MACD indicators will also likely turn positive once again soon. 

 

 

After climbing higher during 9 of 10 weeks beginning in mid-August, DJIA (3) ran into trouble in late October and traded lower in three of the last four weeks. DJIA also logged its sixth Down Friday/Down Monday (DF/DM) earlier this week with a mild Monday decline. Historically, DF/DM’s have had negative implications, but given the relatively few observed this year and DJIA’s performance following them this year, it will likely shake off this most recent one. It is encouraging that DJIA has already recovered the ground lost during and immediately after this week’s DF/DM.

 

S&P 500 (4) and NASDAQ (5) also sustained losses during late October and last week and, like DJIA, are also on track for a gain this week. As long as the gains hold and positive momentum builds, this would likely confirm the recent pullback from all-time highs was just a period of consolidation.

 

Weekly market breadth data has been consistent with the market’s weekly ups and downs over the last three weeks (6). NYSE Weekly Advancers outnumbered Weekly Decliners in positive weeks while Weekly Decliners were the majority during negative weeks. The magnitude of weekly swings is also well represented in weekly breadth data. Big weekly gains had sizable Weekly Advancers while sizable weekly losses produced a corresponding jump in weekly decliners. This suggests a reasonably healthy market that is likely to continue to trend higher in the near term with some additional chop.

 

Weekly New Highs remain an area of potential concern. DJIA, S&P 500, and NASDAQ all set new all-time closing highs after Election Day, but New Highs (7) did not eclipse their week ending September 20, peak. Perhaps it was the 10-year Treasury yield or the market positioning for a new administration in Washington. Whatever the case may be, a market breakout that includes more New Highs would alleviate any lingering concerns.

 

Short-term yields, measured by the 90-day Treasury bond (8), have continued to trend lower. This is expected as the Fed is in a rate-cutting cycle and did cut at its November meeting. But longer-dated yields and the 30-year Treasury are still trending higher. This could be due to a number of factors. Rising federal debt levels, the potential for higher economic growth, or simply because traders and investors are moving capital out of bonds and into stocks. The recent high yield for the 30-year Treasury bond was 4.77% back in April of this year. Should that level be approached again, it could give the stock market reason to pause and assess.

 

 

In last week’s update we anticipated the post-election-day rally would continue, but it also would not likely be a straightforward, unimpeded path higher. After closing at all-time highs on Veterans Day, DJIA, S&P 500, NASDAQ have all paused and weakened modestly in the past few trading sessions. On Monday, Russell 2000 peaked intraday just 1.02 points below its all-time closing high of 2442.74 set November 8, 2021. That date is not a typo, it has been over 3 years since the small-cap index closed at a record high. A breakout to new all-time closing highs by Russell 2000 along with corresponding new all-times by DJIA, S&P 500, and NASDAQ would be bullish and would confirm the current bull market most likely still has room to run.

 

 

In the above chart, a variation of the same chart presented in the November 2024 Almanac Issue from October 24, we have left the Election Year November pattern since 1950 and replaced the recent 21-year November pattern with November 2024 as of today’s close (November 14). This November’s gains use the right-side scale as they are well above historical average performance. Based upon the historical trend, not the magnitude, the market has been tracking the pattern rather closely. The month began with gains, entered into a consolidation period (now), and appears to be heading towards a low, possibly next week. Then we anticipate the rally will likely resume and produce additional new index highs into yearend.

 

 

Speaking of a seasonal low around Thanksgiving reminded us that seasonally speaking, small caps are set up for their annual yearend rally into Q1, often referred to as the “January Effect,” where small caps outperform large caps in January. As we point out on pages 112 and 114 of the Almanac, most of the “January Effect’s” small cap outperformance takes place in the last half of December as tax-loss selling abates.

 

As you can see in the accompanying chart below, the Russell 2000 has been tracking the pattern fairly well since July and it looks like the small fry may finally be coming out of hibernation just in time for small cap stock hunting season. Small caps have leapt higher here in early November and are now in retreat. This aligns well with the annual pattern for Russell 2000 below and with November’s pattern above.

 

 

But as illustrated in the chart, small caps can exhibit some choppy trading from late-October through mid-December. Our small-cap and mid-cap stock picks have historically done well as long as you honor the buy limits and stop losses. If a position is currently trading above its buy limit, patience has generally been rewarded with opportunities presenting through mid-December.

 

 

This trade is featured on page 104 of the Almanac. It takes advantage of all the solidly bullish seasonal patterns that are in play from around Thanksgiving through the completion of the Santa Claus Rally (SCR) detailed on page 118 of the Almanac. You will hear a lot about a Santa Claus rally in media, sometimes they get it right and other times they simply mean any rally in Q4. Our Santa Claus Rally was invented and named by our late founder Yale Hirsch in the 1972 edition of the Almanac. As defined by Yale, the Santa Claus Rally is a short rally that spans the last five trading days of the year and the first two trading days of the New Year. Since 1969, the S&P 500 has averaged 1.3% during the rally, but more importantly, what happens when there is no rally has been even more consequential. We will get into greater detail later.

 

 

Buying the Tuesday before Thanksgiving and holding until the second trading day of the New Year has produced an average S&P 500 gain of 2.58% since 1950 with a 79.73% success rate. Russell 2000 has averaged 3.32% since 1979 with a just as solid 77.78% success rate.

 

Current weakness is an opportunity to establish new positions or add to existing positions in the Almanac Investor portfolios. All advice, buy limits, and stop losses from last week remain current with the exception of Silvercorp Metals (SVM), VanEck Gold Miners (GDX), and SPDR Gold (GLD). SVM, GDX, and GLD have all been stopped out. A strong and strengthening U.S. dollar along with 10-year Treasury bond yields above 4.4% and trending higher are likely to continue to pressure precious metals and the companies that mine and produce them.

 

After struggling to establish a position in iShares Bitcoin (IBIT), a position was added to the Sector Rotation ETF Portfolio on November 8, using its average daily price. Since then, bitcoin and IBIT surged higher but pulled back modestly today. Bitcoin forecasts vary substantially, but $100,000 in the near-term seems likely. Bitcoin does have a limited history, but it has historically enjoyed Q4 rallies and post-presidential election rallies, just like the stock market.

 

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). Jeff reiterated that our most bullish Best Case forecast for 15-25% full-year gain is in play. The quick, clear election decision is bullish and assuages any concerns of an undecided election-year 2000 repeat. Presidential election day through yearend has historically been bullish with just a few exceptions. The combination of a Republican Congress and a Republican President also has a solid, bullish market history with S&P 500 averaging 12.9% and NASDAQ 15.6%.

 

In addition to bullish election year and political alignment forces, broader market seasonality is also bullish. The “Best Months” begin with November and it is the #1 DJIA and S&P 500 month in election years. The best six-month consecutive span, November to April, has seen S&P 500 advance 77.0% of the time with an average gain of 7.1% in all years since 1950.

 

Despite numerous bullish factors, some market volatility and choppy trading are still possible. The Fed did cut interest rates by 0.25% today and will likely do so again at their December meeting, but the 10-year Treasury yield and mortgage rates have been steadily trending higher since mid-September. Softening economic growth and labor metrics appear to be the primary drivers for the Fed’s interest rate cuts. Inflation has retreated from its peak yet remains stubbornly above 2%. Geopolitical concerns remain numerous as well and now that the election has passed, the market could shift its focus back there.

 

In the near-term we anticipate the market will continue to work its way higher with more new all-time highs through yearend and most likely into early 2025. Post-election years have improved since 1985 with DJIA up 8 of the last 10 with an average gain of 17.2%. Three straight years of double-digit gains is impressive and not as farfetched as it may sound. S&P 500 did this as recently as 2019 to 2021. Prior to that from 2012 to 2014.

 

 

Based upon data on page 94 of the Almanac, there are no sector seasonalities beginning or ending in November. 

 

Per our October 11 email Issue when the Seasonal MACD Buy Signal for DJIA, S&P 500 and NASDAQ triggered, all open sector ETF positions have been added to the Sector Rotation portfolio using their respective average daily prices on October 14. Existing positions in iShares Biotech (IBB) and iShares US Technology (IYW) were also added to on October 14 and their respective purchase prices have been updated to reflect the additional purchases. Late October market weakness offered more patient traders even better prices to establish positions in these ETFs. 

 

Of the 11 new ETFs presented on October 3, six were higher and five were lower as of the market’s close on November 6. iShares Semiconductors (SOXX) is the weakest position, down 4.3%. SOXX gained slightly more than 2% today. The top performing position is SPDR Consumer Discretionary (XLY), up 6.3%. XLY extended that gain further today as well. Second best, SPDR Financial (XLF), up 6.2% also deserves a mention however, it did retreat modestly today. All ETFs presented on October 3 can still be considered at current levels or on dips. Suggested stop loss and auto sell prices have been updated to reflect the price the corresponding ETF position was added to the portfolio.

 

Gold and gold-mining stocks have had a solid 2024 as the precious metal climbed to numerous all-time highs. After suffering some sizable losses yesterday, VanEck Gold Miners (GDX) and SPDR Gold (GLD) did rebound today, but gold’s record setting run could be under pressure. Election uncertainty has been resolved, the 10-year Treasury bond yield is trending higher, and the U.S. dollar is also strengthening. Seasonal strength in gold and silver stocks has historically ended in December. As a result, GDX and GLD are on Hold and their stop losses have been increased.

 

Over the last two months we have attempted to add iShares Bitcoin Trust (IBIT) to the portfolio. Finding a buy limit proved more challenging than usual as Bitcoin trades 24/7 while IBIT does not. Bitcoin has demonstrated a reasonably solid Q4 rally during its lifetime and a strong tendency for outsized gains following presidential elections. Rather than fuss and nitpick over a buy limit, we are going to add IBIT to the portfolio on November 8 using its average daily price. IBIT can be purchased at or near its current price up to a limit of $43.75.

 

 

 

Per our October 11 email Issue when the Seasonal MACD Buy Signal for DJIA, S&P 500 and NASDAQ triggered, Invesco QQQ (QQQ), iShares Russell 2000 (IWM), SPDR DJIA (DIA) and SPDR S&P 500 (SPY) have been added to the portfolio using their respective average daily prices on October 14. QQQ, IWM, DIA, and SPY can still be considered on dips below their respective buy limits, if not already purchased. Based upon November’s recent 21-year history and its election-year pattern since 1950, the next opportunity could be ahead of Thanksgiving as the market has tended to consolidate gains from around Election Day through mid-month.

 

All bond ETFs, TLT, AGG, BND, SHV, and SGOV were also closed out of the Tactical Seasonal Switching portfolio on October 14. Excluding dividends and any trading fees, all five positions were closed for modest gains. TLT, AGG, and BND have all traded lower as long-dated yields continue to trend higher.

 

 

 

 

Over the past four weeks through yesterday’s close (November 6), S&P 500 advanced 2.4% while Russell 2000 climbed 8.7% higher. Over the same period the entire stock portfolio gained 3.4% excluding dividends, interest on cash, and any trading fees. With the addition of the 17 new stocks presented on October 17, the cash position in the portfolio has been nearly cut in half. With earnings season wrapping up, we are currently considering a second basket of stocks, potentially in a week or two. We will also retain some cash to trade the Free Lunch basket (page 116 of Almanac).

 

On average, Large caps were the best, advancing 8.4%. Mid caps were second best climbing 5.3% while Small caps retreated a modest 0.6%. Emcor Group Inc (EME) and Leonardo DRS (DRS) continued to shine with solid gains for the large cap portion of the portfolio. Mid caps benefited from InterDigital (IDCC) surging higher on a massive 375% upside earnings surprise announced on October 31. Per standard trading policy, half of the original position in IDCC was sold when it traded above $173.20 (double its original price) for the first time on November 6. EME, DRS and IDCC are on Hold.

 

Super Micro Computer (SMCI) appeared to be on the road to recovery, but when an outside auditor walked away, fears of delisting fiercely returned, and its price was quickly cut in half. SMCI could get delisted, but the degree of certainty is likely far less than the recent price move suggests. We have taken profits on SMCI twice already. The remaining position is small and could quickly rebound if and/or when SMCI regains full listing compliance. SMCI is on Hold. At this time, given the extreme volatility SMCI is exhibiting, we would not consider additional purchases.

 

Shifting attention to the seventeen new positions in the stock portfolio, only three were modestly lower as of the market’s November 6 close and fourteen were higher. POWL, CUK, IESC, and GRMN were all up double digits or more. These four all gapped higher sometime in the last two weeks. These gaps in daily bar charts often end up getting filled or partially filled. Buy limits for POWL, CUK, IESC and GRMN have been adjusted and appear in the table below. 

 

Sell Universal Stainless (USAP) at breakeven or better. For tracking purposes, we will close this position out if it trades above $44. USAP is being acquired for $45 per share, but the transaction is not expected to settle until sometime in Q1 of next year. The capital can likely be better utilized elsewhere.

 

Previously mentioned seasonal weakness ahead of and after mid-November could provide the next opportunity to add new stock ideas should they dip below their respective buy limits.

 

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