JANUARY EFFECT TRADE CANDIDATES 2016
Picking bottoms (or a top) in a stock is one of the most difficult jobs on Wall Street and it is something which I rarely attempt to do. There is, however, one time of year that I have had success in finding deeply oversold stocks which have produced incredible short term percentage moves over the course of 2-3 weeks. Now is that time of year!
The best description of the “January Effect” comes from Wikipedia “The January effect (sometimes called “year-end effect”) is a calendar effect wherein stocks, especially small-cap stocks, have historically tended to rise markedly in price during the period starting on the last day of December and ending on the fifth trading day of January. This effect is owed to year-end selling to create tax losses, recognize capital gains, effect portfolio window dressing, or raise holiday cash. Because such selling depresses the stocks but has nothing to do with their fundamental worth, bargain hunters quickly buy in, causing the January rally.”
I do not think it is as precise as the last day of the year and then selling on the fifth trading day of January, but the reason in this description is valid (except raising holiday cash, do you sell your stocks so you can buy a nice present for your wife?)
Keep in mind that the stocks on this list are not in good technical condition, the charts are look terrible! Also, the fundamentals for these companies are probably lousy. These stocks should be looked at as HIGH RISK and you should consider buying a basket of them across different industries (my four favorites are all in different industries) to spread the risk. I would suggest that you commit no more than 20% of your risk capital to the entire strategy, spread evenly amongst the stocks you choose to purchase.
Below are the stocks, remember I have not done any fundamental work on these. These are short term trading ideas and are not meant to be held for more than 2-3 weeks. Please do not read fundamentals and form an opinion of the stock, this is a seasonal trading strategy which has worked well in the past but may not work this year. The most important consideration in any trading strategy is disciplined implementation of a well thought out plan which includes position sizing relative to account size and one which also must be utilized with strict adherence to stop losses.
BKS 888+ w stop 833
BTE 330+ w stop of 291
CGI 1015+ w stop of 948
EMES 474+ w stop of 427
FUEL 361+ w stop of 335
LXU 747+ w stop of 698
MRO purchase in this are w stop near 1209
SPLS 972+ w stop of 930
TDW 707+ w stop of 643
Remember, these are NOT TREND TRADES and they should be considered riskier than most stocks, keep your share size reasonable. It is always prudent to take partial off if you see a quick pop in the stock. I will update this list only once per day at the end of the day. I may purchase all or none of these stocks, it will depend on price action. My expectation is that I will purchase 2 to 4 of them, and I will not say which ones simply because I may choose wrong. I will also not trade the energy names because I am PERSONALLY COMFORTABLE trading energy stocks. Only YOU know which stocks are or are not correct for you.
UPDATES for 1/4/16 Closing
BKS if long at 890 stop up to 853
BTE if long 331 stop up to 308
CGI still a candidate for purchase above 1015 stop 943
EMES if long at 475 stop remains 427
FUEL still a candidate for purchase above 361 w stop 326
LXU still a candidate for purchase above 747 w stop 673
MRO if long 1273 stop remains 1209
SPLS still a candidate for purchase above 972 w stop 923
TDW if long 710 stop up to 659