December 2020 Trading and Investment Strategy
November 24, 2020
Market at a Glance - 11/24/2020
By: Christopher Mistal
November 24, 2020
11/24/2020: Dow 30046.24 | S&P 3635.41 | NASDAQ 12036.79 | Russell 2K 1853.53 | NYSE 14249.50 | Value Line Arith 7612.43
Fundamental: Mixed. Vaccines are nearly ready, but distribution still remains a challenge. And as we await an approved vaccine, Covid-19 cases are surging, triggering new shutdowns and economic easing rollbacks around the country. As a result unemployment and weekly initial jobless claims remain elevated. The housing market remains firm, but the migration driving gains is likely to slow. Corporate earnings have largely held up in industries and businesses that remained/remain open. More importantly, the outlook continues to improve, and the market is rising because of this.  
Technical: Breaking out. DJIA, S&P 500 and Russell 2000 have all broken out to new all-time closing highs. NASDAQ is close and a breakout by it would be bullish confirmation. NASDAQ has been held back as traders and investors pulled back from this year’s pandemic success stocks in favor of names best positioned to benefit from a vaccine. Today’s broad rally included NASDAQ and could be an early indication that the rally is gaining momentum.
Monetary: 0 – 0.25%. As expected, the Fed’s November meeting announcement did take a back seat to election results as little new was said and no changes to policy were made. However, in the time since that meeting Treasury Secretary did announce that he did not intend to renew or extend the Fed’s Main Street Lending, municipal lending and corporate credit programs. They were and still are set to expire at the end of the year. All three programs were established as part of the Fed’s COVID-19 response earlier this year.
Seasonal: Bullish. December is now the number three S&P 500 and DJIA month since 1950, averaging gains of 1.5% on each index. It’s the top Russell 2000 (1979) month and third best for NASDAQ (1971) and Russell 1000 (1979). The “January Effect” of small-cap outperformance starts in mid-December. Wall Street’s only “Free Lunch” of distressed small- and micro-cap stocks making new 52-week lows on December Triple-Witching Friday will be served before the opening bell on December 21. Santa’s Rally begins on Thursday December 24 and lasts until the second trading day of the New Year. In years when Santa Claus did not come to Wall Street, bear markets or sizable corrections have often materialized in the coming year.
Psychological: Elevated. According to Investor’s Intelligence Advisors Sentiment survey Bullish advisors stood at 59.6%. Correction advisors stood at 22.2% while Bearish advisors were at 18.2% in the most current report from last week. There was a brief dip in bullish sentiment at the end of October, but it did not stick as the market quickly rebounded. Historically, holiday and yearend cheer have translated into market gains and high levels of bullish sentiment so it would not be surprising to see the same again this year and possibly even higher levels of bulls as positive vaccine news breaks.
December Outlook: Yearend Rally Powers Ahead
By: Jeffrey A. Hirsch & Christopher Mistal
November 24, 2020
Stocks have been on the rise since the late-October lows in prototypical market seasonality fashion, though NASDAQ has lagged a bit. Honestly, NASDAQ tech stocks deserve a break, they have carried the market for months now as they have driven and supported the stay-at-home economy. This rotation into the reopening-economy big cap stocks and the new highs in the Russell 2000 small caps, which are more domestic-based firms, is encouraging. 
The Russell 2000 index of small cap stocks is on a tear, up 20.5% for November alone and hitting a new all-time high in the process. DJIA is running a distant second for November, though up an impressive 13.4%. S&P 500’s 11.2% and NASDAQ’s 10.3% month-to-date gains are nothing to scoff at either. These are top-20 monthly percent gains of all time for DJIA and S&P 500 – 3rd best DJIA November and #1 S&P November; and NASDAQ’s 31st best month and 4th best November. And last but surely not least, if these gains hold, it will be the Best Russell 2000 Month of all time.
[Typical November Chart]
As of today’s close, from the close on November 5, 2020 when our Best Six/Eight Months Seasonal MACD Buy Signal triggered, the major indices are up respectably as well: DJIA +5.8%, S&P 500 +3.6%, NASDAQ +1.2% and Russell 2000 +11.7%. This continues the return of seasonality we discussed last month. November’s seasonal upside bias is quite clear in the updated chart here of S&P 500 for 2020 (right axis) overlaid on the One-Year Seasonal Pattern since 1950 and 1988 (left axis). 
November 2020 strength comes on the heels of the perennial September and October weakness we experienced this year, which tracks historical pattern over the past 70-year and 32-year timeframes. With some vision now in the rearview mirror it appears S&P has made a classic late-October low. This October low was also a slightly higher-low than the September low and forms an uptrend line of support.
[S&P 500 One-Year Seasonal Pattern Since 1950]
Before we get too far ahead of ourselves, it pays to remember that the first half of December is often weaker than the latter half, which is also when small cap stocks begin to outperform large caps (the old “January Effect”, not to be confused with our January Barometer). However, Russell 2000 November gains may be difficult to outdo. 
Then there’s the usually strong Triple Witching Week and Week After. Triple Witching Friday, December 18 is also the close we use to select our annual basket of “Free Lunch” stocks making new 52-week lows. That list is emailed to subscribers over the weekend before the Open on Monday.
Our Santa Claus Rally (SCR) begins on Christmas Eve, December 24. The SCR is the last 5 trading days of the year and the first 2 of the New Year and is the first indication of the year to come. To Wit: “If Santa Claus should fail to call, Bears may come to Broad and Wall.
Yearend bullish seasonality is being buoyed higher by vaccine optimism and news that the Trump administration has officially authorized the Biden transition. And the market seems to be pleased with how Biden has been preparing his administration and his cabinet selections. There is also renewed hope for another stimulus package. We are encouraged by how resilient the market has remained in the face of rising COVID-19 cases – a testament to the promise of the medical solutions on the horizon and that we are better prepared for any new economic restrictions. The stay-at-home economy seems to be fusing with the reopening economy and this is positive for the market going into yearend and 2021.
Pulse of the Market
Octoberphobia did not spill over into November this year as DJIA rallied over 800 points (1) on the first trading day of November which was also the day before Election Day this year. Broad strength persisted through the election and into mid-November. On the close of November 5, our Seasonal MACD Buy signal was triggered (2) and we issued an email Alert. As of noon today, DJIA has advanced to over 30,000, up approximately 5.7% since our buy signal.
Historically, market strength around election time and in November is common as the removal of uncertainty over who will occupy the White House for the next four years appears to be more important than who is actually in power. Positive COVID-19 vaccine news has also helped outset surging cases and perhaps given a lift to everyone’s spirits and outlook. This is contributing to typical, bullish holiday and yearend seasonality. This is further evidence that seasonality still exists and was only suppressed by the pandemic.
Ever since the late-October Down Friday/Down Monday, DJIA has enjoyed solid gains on Mondays for four straight weeks (3). Since DJIA bottomed on Monday March 23, Monday has been the best day of the week up 26 of the last 35. Average Monday DJIA gains have been 0.83% with a total point gain of 6795.28. S&P 500 and NASDAQ have similar records over the same period with average gains of 0.74% and 0.88% respectively.
DJIA, S&P 500 (4) and NASDAQ (5) all had their second-best weekly percent gains in a November this year. Only the final full week in 2008 was stronger since 1950 for DJIA and S&P 500 and since 1971 for NASDAQ. Absent from the table, but perhaps even more bullish is the performance of the Russell 2000 small cap index this month. After lagging the other major indexes since August 2018, the Russell 2000 has surged over 20% this month and closed at a new all-time high multiple times.
Market breadth measured by NYSE Weekly Advancers and NYSE Weekly Decliners (6) has been positive as the market has climbed higher. Advancers have outnumbered Decliners by a robust margin over the last three weeks. This broad participation in the rally is bullish and suggests the rally can persist. 
DJIA, S&P 500 and Russell 2000 have broken out to new all-time closing highs. NASDAQ is just below its old all-time high. As a result, Weekly New Highs (7) have expanded to their highest level since February of this year during the week ending November 13. Weekly New Lows have also declined to the lowest levels since August. Continued expansion of Weekly New Highs is a bullish trend.
Even as stocks have moved higher, the 90-day Treasury rate dipped to its lowest weekly level since the end of March (8), when it was briefly negative. The dip was minor, but it did help widen the spread between it and the 30-year Treasury rate. The spread has grown to its greatest size since February 2018 over the last five weeks. An expanding spread is generally a positive for banks and financials which could give the lagging sector a boost.
Click for larger graphic…
[Pulse of the Market]
December Almanac: Small Caps Shine, Free Lunch Served, and Santa Visits
By: Jeffrey A. Hirsch & Christopher Mistal
November 24, 2020
December is now the number three S&P 500 and Dow Jones Industrials month since 1950, averaging gains of 1.5% on each index. It’s the top Russell 2000 (1979) month and third best for NASDAQ (1971) and Russell 1000 (1979). In 2018, DJIA suffered its worst December performance since 1931 and its fourth worst December going all the way back to 1901. However, the market rarely falls precipitously in December and a repeat of 2018 is not highly likely. 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 can pullback in the first half of the month.
In the last seventeen election years, December’s ranking changed modestly to #2 DJIA, #5 NASDAQ, but S&P 500 remains #3. Small caps, measured by the Russell 2000, have had a field day in election-year Decembers. Since 1980, the Russell 2000 has lost ground just once in ten election years in December. The average small cap gain in all ten years is a solid 3.0%. The Russell 2000’s single loss was in 1980 when the Prime Rate was 21.5%.
[December Election Year Performance Table]
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. Regardless, December is laden with market seasonality and important events. 
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 Triple-Witching Friday. An Almanac Investor Alert will be sent prior to the open on December 21 containing “Free Lunch” stock selections. The “Santa Claus Rally” begins on the open on Christmas Eve day and lasts until the second trading day of 2021. Average S&P 500 gains over this seven trading-day range 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. The last six times 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. As Yale Hirsch’s now famous line states, “If Santa Claus should fail to call, bears may come to Broad and Wall.”
December Triple Witching Week is more favorable to the S&P 500 with Monday up twelve of the last twenty years while Triple-Witching Friday is up twenty-six of the last thirty-eight years with an average 0.26% gain. The entire week has logged gains twenty-seven times in the last thirty-six years. The week after December Triple Witching is the best of all weeks after Triple Witching for DJIA and is the only one with a clearly bullish bias, advancing in twenty-eight of the last thirty-eight 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 (DJIA up eight of the last thirteen). On the last trading day of the year, NASDAQ has been down in fifteen of the last twenty 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.
December (1950-2019)
  DJI SP500 NASDAQ Russell 1K Russell 2K
Rank 3 3 3 3 1
# Up 49 52 29 31 31
# Down 21 18 20 10 10
Average % 1.5   1.5   1.6   1.3   2.2
4-Year Presidential Election Cycle Performance by %
Post-Election 1.0   0.6   0.9   1.3   2.2
Mid-Term 0.9 1.2 -0.3 0.1 0.3
Pre-Election 2.7 2.9 4.2 2.9 3.0
Election 1.4 1.2 1.4 0.8 3.0
Best & Worst December by %
Best 1991 9.5 1991 11.2 1999 22.0 1991 11.2 1999 11.2
Worst 2018 -8.7 2018 -9.2 2002 -9.7 2018 -9.3 2018 -12.0
December Weeks by %
Best 12/2/11 7.0 12/2/11 7.4 12/8/00 10.3 12/2/11 7.4 12/2/11 10.3
Worst 12/4/87 -7.5 12/6/74 -7.1 12/15/00 -9.1 12/21/18 -7.1 12/21/18 -8.4
December Days by %
Best 12/26/18 5.0 12/16/08 5.1 12/5/00 10.5 12/16/08 5.2 12/16/08 6.7
Worst 12/1/08 -7.7 12/1/08 -8.9 12/1/08 -9.0 12/1/08 -9.1 12/1/08 -11.9
First Trading Day of Expiration Week: 1990-2019
#Up-#Down   18-12   17-13   15-15   17-13   14-16
Streak   U1   U1   U1   U1   U1
Avg %   0.06   0.01   -0.07   -0.02   -0.23
Options Expiration Day: 1990-2019
#Up-#Down   18-12   20-10   19-11   20-10   17-13
Streak   U1   U1   U1   U1   U1
Avg %   0.04   0.12   0.12   0.13   0.30
Options Expiration Week: 1990-2019
#Up-#Down   23-7   22-8   19-11   21-9   16-17
Streak   U1   U1   U1   U1   U1
Avg %   0.47   0.49   0.001   0.44   0.35
Week After Options Expiration: 1990-2019
#Up-#Down   22-8   20-10   20-10   20-10   22-8
Streak   U7   U7   U7   U7   D1
Avg %   0.83   0.69   0.86   0.73   1.02
December 2020 Bullish Days: Data 1999-2019
  3, 10, 15 3, 9, 15, 16, 22 3, 4, 9, 15 3, 9, 15, 16 9, 16, 18
  21-23, 28 23, 28 22-24, 28 22, 23, 28 21-24, 28
December 2020 Bearish Days: Data 1999-2019
  2, 17, 24 17, 31 17, 31 17, 31 14, 31
December 2020 Strategy Calendar
By: Christopher Mistal
November 24, 2020
Stock Portfolio Updates: Small Caps Pop
By: Christopher Mistal
November 19, 2020
Over the last three weeks through yesterday’s close, S&P 500 jumped 9.1% while Russell 2000 soared 14.6%. During the same time period the entire portfolio climbed a modest 3.1% higher excluding dividends and any trading fees. Our Mid-cap stocks were responsible for the majority of the overall advance, gaining 4.3%. Large-cap positions performed second best, advancing 3.3% overall. Small-cap stocks rose 2.7% on average including the sizable cash balance held in that portfolio.
As was noted in the last update in late October, a new basket of stocks was released last week, one week after our Seasonal MACD Buy signal triggered. Of the 20 new trade ideas presented 19 were added to the portfolio on November 13, the first trading day after. Many of the positions either opened below their respective buy limits or went on to trade below their buy limit on that day. When the stock opened below its buy limit, it was added to the portfolio using its average price on that day. Xpel Inc. (XPEL) is the only position that has not yet traded below its buy limit from the basket. XPEL did retreat today and can still be considered on dips.
Of the 19 new positions added, 14 are positive already while 5 are lower and the overall average gains is 2.4%. The top performing new position thus far is Avid Tech (AVID), up 14.1% as of yesterday’s close. The weakest new position is JinkoSolar Holdings (JKS) off 8.4%. JKS had a major run higher starting in September that lasted through late-October and it appears to be consolidating those gains now. AVID can be considered on dips and JKS could be considered at current levels.
Existing positions in the portfolio had somewhat mixed results over the last three weeks. Small-cap positions AUB, KBH, WSFS and SSB enjoyed solid gains. Their average gain last update was 18.0% and as of yesterday’s close it was up to 38.6%. SSB swung from a modest loss of 2.2% to a gain of 16.9%. Mid-cap stocks AQN and JBLU also moved nicely higher. JBLU jumped the most going from a little over $11 per share to $14.63.
Older large-cap positions did not fare as well overall as some defensive, dividend yielding stocks slipped lower and other simply fell out of favor. Regeneron (REGN) was stopped out on November 18 when it closed below its stop loss for a total gain of 86.4% since addition. REGN had previously doubled so the shares closed out represented the remaining half of the original position. Recent positive vaccine news from other major players likely caused REGN to retreat.
Overall as we head toward the end of the year, the stock portfolio is now a mix of growth, defense and cash. The cash position has declined with the addition of 19 new positions, bit still remains somewhat elevated. Some of the cash will be used to trade Free Lunch positions (emailed prior to the open of December 21) and some will remain. Covid-19 cases are spiking, but a vaccine is also on its way. In the short-term this would appear to be a near perfect recipe for continued market volatility as the market digests incoming headlines and developments. A blend of growth, defense and cash appears to be a reasonable posture for the stock portfolio at this time.
Please see table below for specific buy limits, stop losses and current advice for each position in the portfolio.
[Almanac Investor Stock Portfolio Table]
November Stock Basket: New Trades for Consideration
By: Christopher Mistal
November 12, 2020
[Publication Note:

Unfortunately, due to the COVID-19 pandemic, there have been unforeseen manufacturing and production interruptions at our publisher John Wiley & Sons. We regret to inform you that there will be a delay in the delivery of the Stock Trader’s Almanac 2021. We hope to have them around mid-December and get them to you by yearend. 

Again, we are deeply sorry for this inconvenience. Thank you for your patience and understanding. Please do not hesitate to contact us if you have any other concerns questions.]
This basket is being presented in order to take advantage of the “Best Months” of the year (November through April/June) for stocks. We will look to add these 20 stocks, in the table below, near current levels or on minor dips. Many of the positions did weaken today and are likely to open below the suggested buy limits. We will allocate a hypothetical $2000 from the cash position in the portfolio to each position. For each stock we have provided the ticker, name, sector, general business description, PE, price-to-sales ratio, market value, a dividend yield and a suggested buy limit and stop loss. 
These 20 stocks all have reasonably solid valuations, revenue and earnings growth. Most also exhibit positive price and volume action as well as other constructive technical and chart pattern indications. The covid-19 induced shutdown and bear market earlier this year did influence and skew traditional metrics like PE and price-to-sales ratio as many companies experienced sharp drops in Q2 results and brisk rebounds in Q3. The group of 20 covers a broad array of sectors and industries. It also runs the gamut of market capitalization with a mix of large caps with more than $5 billion in market value, midcaps in the $1-5 billion range, and small caps under $1 billion.
We first sifted through the universe of nearly 8,000 U.S. traded stocks for those with a market cap of at least $50 million and average daily volume of 50,000 shares or more on average over the past twenty trading sessions. Then we winnowed the list down to only those stocks with relatively low price-to-sales and price-to-earnings ratios with a few exceptions. From there we searched for stocks that appeared to fair well in Q2 and Q3 based upon sales and earnings. A special nod was given to stocks with a below average number of analysts following them.
We then dug into numerous individual company charts before settling on these final 20 stocks. Our underlying theme was to find reasonably priced stocks that appear to be quietly growing sales and earnings while flying somewhat under the radar with only a limited number on The Street paying close attention to them. As market cap goes higher, this becomes increasingly challenging and a history of earnings surprises and future estimates becomes even more important. 
At the end of the screening process we were left with a reasonably diverse basket. Computer and technology are well represented with six stocks, but the remainder of the basket includes medical, semiconductor/solar, construction, transportation/aerospace and consumer related stocks. We did not search specifically for top-performing stocks within any specific sector, this just happens to be what remained after our process.
[Almanac Investor Stock Basket November 11, 2020 Closes]
Tactical Seasonal MACD & ETF Portfolio Updates
By: Jeffrey A. Hirsch & Christopher Mistal
November 05, 2020
Faster moving MACD “Buy” indicators applied to DJIA, S&P 500 and NASDAQ are all positive as of today’s close. With all three indices confirming, we are now issuing our Seasonal MACD Buy Signal.
[DJIA Daily Bar Chart]
[S&P 500 Daily Bar Chart]
[NASDAQ Daily Bar Chart]
Tactical Seasonal Switching Strategy ETF Portfolio Trades
Buy SPDR DJIA (DIA), SPDR S&P 500 (SPY), Invesco QQQ (QQQ), and iShares Russell 2000 (IWM) in the Almanac Investor Tactical Seasonal Switching Strategy Portfolio. These positions will be equally weighted in the portfolio. Buy limits for DIA, SPY, QQQ and IWM are initially today’s closing price plus 1%. For example if today’s closing price was $270, then the buy limit would be $272.70 (closing price * 1.01 = buy limit). For tracking purposes, these ETFs will be added to the portfolio using their respective average prices on November 6. This price will be calculated by summing the high and low prices and dividing by two.
Sell defensive “Worst Months” positions in iShares Core US Aggregate Bond (AGG) and Vanguard Total Bond Market (BND). For tracking purposes, these ETFs will be closed out using their respective average prices on November 6.
[Almanac Investor TSS ETF Portfolio – November 5, 2020 Closes]
Sector Rotation ETF Portfolio Trades
In the Almanac Investor Sector Rotation Portfolio, Buy XLP, IBB, XBI, IYW, IYT, IYZ, SOXX, XLY, XLF, XLV, XLI, XLB, XLK and VNQ. Use a 1% Buy Limit for these positions as detailed above. For tracking purposes, these ETFs will be added to the portfolio using their respective average prices also on November 6. In addition to updated buy limits, stop loss and auto-sell prices have been updated.
SPDR Healthcare (XLV) was the sole position to be added before today’s Seasonal MACD Buy signal. XLV was added on October 29 when it dipped below its previous buy limit of 101.07. XLV’s stop loss has been raised due to recent gains and its auto-sell price has changed.
Seasonal weakness in crude oil has historically ended in the later stages of November. The corresponding position in ProShares UltraShort Bloomberg Crude Oil (SCO) could be sold outright into current strength or a tight trailing stop loss could be utilized. We will use a 2% trailing stop loss, updated daily using SCO’s close. We will close out SCO when it closes below its stop loss.
SPDR Gold (GLD) and iShares Silver (SLV) are on Hold.
[Almanac Investor SR ETF Portfolio – November 5, 2020 Closes]