Norman Vincent Peale beautifully stated, “People become really quite remarkable when they start thinking that they can do things. When they believe in themselves, they have the first secret of success,” states John Person of PersonsPlanet.com.
This thought should resonate with all traders and investors. Trading and investing requires capital, time, and emotional strength in terms of discipline and patience, all these qualities will then help one develop a true sense of self confidence. For months I have been given a chance to contribute and share my research and trade suggestions for the MoneyShow. As a reader it may be hard to know who or when to trust any specific recommendation, especially in this highly volatile trading environment.
Take for example last week where Snowflake (SNOW) hits an intraday high of $429. And yet four (4) trading days later, 26 hours’ worth of actual open outcry trading time, the stock falls to a low near 325, a loss of 25%. It’s an amazing period of volatility. It’s also a period where fast gains can turn into real pains. Knowing that this business is attracting traders who are looking to fulfill dreams of get-rich-quick profits, while they do exist, they exist for the quick and nimble. However, I have a few choice selections that should give traders an edge and a nice boost for 2021.
I still see a 72% chance Santa Claus will show up for investors this year based on my technical tools. The first observation is based on my Weekly Persons Pivots and this indicator remains in a bullish mode (blue above gold lines). The daily advance decline lines, while trending lower last week remain above its respected moving average lines with the aeekly AD analysis supporting a bull trend. Volume is slightly disappointing in the S&P 500 (SPY) and PowerShares QQQ Trust (QQQ) yet breaking out in the Russell 2000 (IWM).
Seasonal trends show the S&P 500, the Dow Jones, and the Russell 2K have higher trends now through mid-January, where the NASDAQ 100 has a fading seasonal trend. If the large-cap “FANG” and “Covid” trades do not collapse, but rather simply stall, then we can see newer highs in the SPY. We need more help from energy, consumer discretionary, and financials along with healthcare to get this end-of-year rally underway. As a reminder last week, the energy sector was one of the only group positive on the week. The Energy Select Sector SPDR (XLE) gained 1.18%, SPDR Biotech (XBI) was up 4.46%.
Looking at contrarian indicators, using the CFTC COT data, Small speculators added to short positions as did the “hedge Fund” category. The COT report is released Friday where the numbers are reflective of positions held from Tuesday's (12/08) close of business. From the prior Tuesday close to Friday's close the market was lower, so I am in the opinion small speculators are either still short or added to their short positions, thus giving fuel for a short-covering rally. While positive news hit Saturday that Pfizer’s vaccine would be approved by the FDA, the market may have anticipated this by pricing in this event.
My take is we will see a Santa Claus rally, however, we still have to contend with a tidal wave of events. Namely end-of-year position squaring, the FOMC announcement on interest rate projections and the economic outlook along with investors trying to handicap what sectors will be better investments under a new President administration.
As for the Federal Reserve, if Jerome Powell comments that we need more stimulus this should be supportive to the health of consumers, insurance companies, and small banks. It is possible we could see another 3-5% gain in the SPY the question is from what level?
The better question is should we look at a midweek dip to buy the Russell 2K, otherwise known as “the January Effect”? Historically, the Russell has given annual returns between 25% and 47%. In 1995, 28.45%, in 2003 we had a 47.25% return, in 2010 we had a 26.85% return and in 2013 we had a 38% return. 2016 had a 21% return. 2017 saw a 14.65% return.
The worst-performing year since 1995 was 2008, which resulted in a 33.79% loss. But 2009 followed up with a 27.17% gain. Other years, which resulted in losses was 1998 with a loss of 2.55%, 2000 with a 3.02% loss, 2007 with a 1.57% loss, 2011 with a 4.18% loss, and 2015 with a 4.41% loss. Not all years are created equal, and we certainly do not foot the bill for the same economic environment as we had in 2008, despite a global pandemic. Last year did not register a stretched percentage gain, the odds of more gains for the Russell 2K into the first week of January are within the statistical norm. For the record, the IWM gained while all other indexes fell, the Russell 2000 is up nearly 3% in just the past two weeks.
This week I am expecting a re-shuffling from investors selling losers for end of year tax write offs, and possibly more “shaving” or lightening on stocks that had stratospheric price surges, in order to take advantage of this year's tax codes. Plus, we have a “rebalancing in the major indexes with additions and deletions; one notable stock, Tesla (TSLA) is being added to the S&P 500. Moreover its “rollover week” and quarterly option expiration week. Once again, “If” we have a “dip” then I want to enter a bull call spread in the Russell 2000 at lower levels.
Therefore, I have added this trade in the table below and have looked at a “theoretical” value of this strategy based on prices pulling back near weekly Pivot support ($186.18). I have raised the bids and stops up on DuPont (DD) and Phillips 66 (PSXP). Anything more that looks like we can bank some profits on, I will send an email alert to my subscribers.
As for adding any new long-term stock positions, I am simply looking to add on to my previous weekly trade recommendations as shown in the table below. I am patiently waiting for prices to come to me rather than chasing the market. This style is known as “scaling” into trades at specific price levels and over a specific time frame. I hope this information finds you well.
To learn more about John Person, please visit PersonsPlanet.com.
