Thank you for your interest in the January Effect Candidates 2015. In years past we have seen many of the January Effect stocks double in a short period of time. While we would like to see similar returns from this year’s candidates, we will approach each stock with an eye of suspicion.
The charts for the stocks are terrible! They are close to 52 week (or even multi-year, or all time) lows, the fundamental outlook for these companies is certainly not bullish. In fact, I would not be surprised if one or two of our candidates gets delisted or goes bankrupt by the end of 2015. Don’t worry though, we are not looking to invest in these stocks, they are trade candidates only.
How long you choose to hold these stocks is up to you but you will receive follow up stop suggestions via email and you will also be able to participate in a live webinar in about a week for further follow up and review. On a more positive note, it would be a big surprise to me if one or more of these stocks were not up at least 50% by the end of January 2015.
The stocks we will follow are not investment ideas! They are trading ideas which may or may not be appropriate for a portion of your risk capital. What percent of your account you decide to put into the ideas depends on your personal situation. Each person will have to decide for themselves; what percent of their risk capital to commit to this strategy, how to divide that capital amongst the trading ideas and which stocks look best to them.
While some people may wish to purchase every stock which meets entry criteria, others may be tempted to just buy one of them in big size and hope to get it right. I would warn you against being overcome by greed and putting too much capital into the stocks. I think there is a middle ground for most people and I would suggest that you buy at least 2-3 of the ideas which appeal most to you.
Below is some of the criteria used for determining the stocks on this list.
• Each stock must be down on the year
• Down at least 40% from the year high
• Stock must have traded at a 52 week low within the last 2 weeks
• Average daily volume over last 20 days is at least 400,000
• Share price is <20.00 Perhaps more importantly, these are some of the exclusions to the list
• No biotech stocks -when biotechs get crushed it is because they typically have deep problems and do not bounce back for tax purposes.
• No natural resource stocks (oil, gas, gold, etc.) Money flows in and out of these stocks are typically based on bigger macroeconomic cycles and do not get bought and sold for tax reasons. An exception has been made for both WLT and MCP because they are stocks I have traded successfully in the past and feel more comfortable with them, do what is right for YOU. Oil is still in a primary downtrend and that makes buying the average oil related stock less likely to rally.
• No bulletin board stocks, the liquidity just cannot be trusted. They tend to be “roach motels” easy to get in, but impossible to get out of.
• No Exchange Traded Funds (ETF’s) we are looking for individual opportunities, not sector rotation.
• No interest rate sensitive stocks such as Real Estate Investment Trusts (REIT’s), banks, mortgage companies, etc.
• I had my eye on some of the 3-D Printing stocks (XONE, VJET, DDD) but they moved substantially on Friday and ruined the risk/reward profile for a near term entry.
As you will see, profiting from the January Effect is not a simple matter of buying stocks which hit a 52 week low on the last couple of days of the year. There is a great deal of subjective analysis which goes into which stocks were selected. You should also employ some subjective analysis to trade the stocks which make the most sense to you personally. Remember, risk management is the cornerstone to ANY successful approach, honor your stops and don’t put too much capital into any one idea.
By now I am sure you are anxious to see the names on our list. Below is a table of what I consider to be some important information. As you can see from the list below, many of these stocks have large short interest positions and while that may help their upside with the potential of shorts covering, keep in mind that the shorts are correctly positioned in weak stocks If there is to be a squeeze, it would be considered a “knee jerk” squeeze (which are typically short lived) not a “structural squeeze” If you are unfamiliar with short squeezes read Chapter 15 from my book Technical Analysis Using Multiple Timeframes
A word about stops. Many of the stocks show more than one level for stops, it is up to you to decide what level is most appropriate for you. The tighter stops will obviously have a greater chance of getting hit whereas the wider stops will keep you in longer but because there is a greater dollar risk per share, you should adjust your position size. Some people prefer to keep a close stop on half of the position and then use the wider stop on the balance, DO WHAT IS RIGHT FOR YOU.