Thursday, December 10, 2009

The December Free Lunch

December more than any other month is loaded with seasonality folklore which is recycled annually in the business dailies.

The seasonality bible is the Stock Trader’s Almanac first published in 1967. This book allowed Mr. Hirsch to distil his lifelong interest in stock market history, cycles and patterns into a practical working tool for the average investor. It was the first compilation of the market’s seasonal trends and tendencies combined with a calendar and laid out for use by non-institutional investors.

One of the mid December seasonal plays is the “free lunch” wherein investors tend to get rid of their losing stocks near year-end for tax purposes. This often has the effect of driving the prices down to near 52-week lows. The Stock Trader's Almanac has shown that NYSE stocks selling at their lows on December 15 will usually outperform the markets through the following late January and early February. I assume the TSX would follow the same model.

I ran a stock filter on the listed TSX stocks seeking out issuers that were trading too far below their 100 day moving averages on a historical basis. About 80 names popped up as candidates for attracting tax-loss sales over the next few weeks. If our “free lunch” theory works these names should deliver nice above market rebounds through January and into mid February of 2010.

Our chart below sets out two likely suspects for a January – February rebound

2 comments:

clueless said...

Bill,

Re your nov. 28 post on leaving commodities,do you feel the same about agriculture? I hold COW.TO and was planning on holding it long term.Thanks for any feedback.

Gettingtechnical.com said...

Hello Fellow Bloggers

It is possible for bullion to trade down to the $900 level and not violate the current up-trend. The key is the yield on the US 10-year T-note currently running over 3.5% rising rates will boost the US$

On the materials space the AGRA or soft commodities look good - I like the COW, the HAU and the MOO

Bill Carrigan