Comic courtesy of Stan Yan who creates a free daily Wall Street comic, you can VIEW HIS DAILY COMIC HERE
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?).
Over the last nine months of doing this blog I have given away a lot of useful information at no charge, this time it is going to cost. How much the information costs is up to you, simply use the “PayPal Donate” button (located on the right hand side of the page) to make a payment and I will email you a list of fifteen candidates for trading this strategy. I will also let you know what my top four picks are (these are the ones I am looking seriously at right now). I will include purchase points and stop levels and I will also update the stops on these four picks via email.
Keep in mind that the stocks on this list are not in good technical condition, the charts all look terrible! Also, the fundamentals for these companies are probably lousy (although two of my four favorites are trading below the book value quoted on Yahoo finance, I’ll let you know which ones). 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.