2021’s Losers Could Bounce Back Due to the January Effect

[TradeSmith Daily]( 2021’s Losers Could Bounce Back Due to the January Effect 2021 came in like a lion in terms of stock market gains, but it’s going out like a lamb. And that’s not really surprising. For instance, the Russell 1000 Index (IWB) of large-cap U.S. stocks soared 20.7% higher through the first eight months of 2021. But in the three months since then, the index has gained only 1.3% more. The fall months tripped the Russell just short of the finish line with pullbacks of 7% in September and nearly 6% in November. Like a football team that blows a big lead in the fourth quarter, stocks just can’t seem to finish strong. But it’s clear to see why. A 20%-plus gain earlier in the year is more than enough reason for investors to cash in some of those gains at this time of year. In the last month or so, investors most likely engaged in some end-of-year tax-planning moves. This involves selling losing stocks at year-end to offset big gains earned earlier this year. And the selling has probably ramped up in 2021 for three good reasons. RECOMMENDED LINK [When 3.4 Trillion in Retirement Savings… Just Disappeared]( Remember the 2008 global housing crisis? When the stock market crashed nearly 55%… and $3.4 trillion in retirement savings just disappeared — like so much smoke from a blown-out candle. Then there was the COVID crash of 2020… This man knew to sell his stocks right before it hit. Now he says the next crash is about to happen — and he’s got the exact day inside the envelope in his hand! [Click here to learn how he knows…]( ’Tis the Season for Tax-Loss Harvesting First, despite the 20%-plus gain for the index, plenty of individual stocks have been beaten down this year. Taking a closer look, you’ll find that 105 stocks in the Russell 1000 Index are down 20% or more this year. So there is likely to be more year-end tax-loss selling than usual in the stocks that have performed poorly during 2021. Second, plenty of investors are worried that tax rates are headed higher from here, and that includes capital gains rates. The Biden administration has already proposed this. And if the capital gains tax does take a bigger bite out of your profits next year, that creates a strong incentive to book more of your gains before the end of this year to avoid potentially higher tax rates in 2022. Third, just like the major indexes, plenty of professional money managers have also had a good year in 2021. And that creates a big incentive to “sit on the lead” through year-end. These professionals are most likely due big incentive-based fees and bonuses based on their performance this year. So why risk blowing it in the last few weeks? For that reason, the pros are likely doing some tax-loss harvesting of their own right now. And they aren’t sticking their necks out to buy into the recent decline either. The silver lining to this scenario is something called the January Effect. And it could be a powerful moneymaker for you in 2022. Could the January Effect Boost This Year’s Losers? The January Effect is simply the tendency for stocks to consistently move higher in the first month of the year. It’s believed to be driven by the very same investors — pro and retail alike — who engage in year-end tax-loss selling. They often want to put that money right back to work at the beginning of the new year. Another possible explanation is the generally large money flows into the stock market from individual as well as institutional investors at the beginning of each month. Those money flows can be magnified during the first month of the year. Whatever the reason, or combination of reasons, the January Effect has historically given stocks a reliable boost in the first month of the year. And that boost is particularly true for stocks that declined the most during the previous year. With that in mind, I took a closer look at the Russell 1000 list of losers for 2021 at the end of last week. To my surprise, I found few in the Red Zone. But most were in the Yellow Zone, a neutral rating. And many of the stocks in this group still have Bullish ratings from our system. But I was most interested in stocks that were still in the Green Zone despite declining in 2021. RECOMMENDED LINK [The “No News” Hotlist Investors Can’t Get Enough Of]( A university study suggested a surprising fact, no news is good news. Saying, “the best returns come from companies who never make the news.” A daily “No News” hotlist can help you capitalize on this. [It recently pinpointed 10 under-the-radar tickers with HUGE explosive potential](. Since it was started, the hotlist has averaged one triple-digit opportunity every trading day for the last 3 years. [❯❯❯ Get the “No News” hotlist and 10 explosive tickers today](. How to Screen for Potential January Effect Bounce-Back Stocks Could these be good candidates to buy in the first week of the New Year to take advantage of the January Effect? Quite possibly. To screen for these stocks yourself in our system, simply go to the TradeSmith Finance Market Outlook page, under the “Markets” tab at the top of the page, and click on the Russell 1000 Index (IWB) (or any other index you like). This will take you to the Distributions tab for the index. On the left side of the page is the Current Stock Rating Distribution widget. For the Russell 1000, you’ll notice that nearly 70% of index stocks still have Bullish ratings. Another 25% are Strong Bullish. Now, click on the right arrow to view the Current Health Distribution. You’ll see that nearly 70% of stocks are in the Green Zone. Click on the percentage link to go to the screener for individual stocks. On the screener page, I would normally look at the Green Zone stocks before anything else. But remember, we’re looking for losers that are primed for possible gains due to the January Effect. On the search preferences page, I want to input specifications that result in a bigger list of stocks. So, under Health Status, I include both Green Zone and Yellow Zone. Under the Display & Sort Results section, the default is to sort the results by Health. But here, I sort the stocks by one-year change percentage (1 Y Change %; you may need to scroll down to find this option) and Ascending (ASC). This puts the worst performers at the top of the list. Here’s one stock that caught my eye right off the bat: Palantir Technologies (PLTR), which went public in 2020. The stock has been in the Green Zone, a healthy state, since early October, despite its recent decline. This could be a prime January Effect rally candidate. But also note PLTR is a volatile stock, with a sky-high-risk VQ of 60.66%. But according to our timing tools, PLTR is in a valley turn area, indicating a potential rally into late January. I’ll be keeping a close eye on this, and other stocks on the list, for a potential January Effect bounce-back in price. Enjoy your Tuesday, [Keith Kaplan]Keith Kaplan CEO, TradeSmith P.S. As you hunt for stocks poised to make a comeback in the new year, being able to analyze the health of major markets and their component stocks can give you a serious advantage. With our centralized platform of market outlook and stock discovery tools, it’s never been easier to get the insights you need before you buy in. If you’d like to get access to them, [click here](. P.P.S. You’re invited to join our Product Education Specialist, Marina Stroud, for her free Beginner Bootcamp training session. In today’s webinar, we’ll discuss CoPilot by TradeSmith. CoPilot is a breakthrough options trading solution for anyone who wants to generate weekly or monthly income. Before you can start utilizing our strategies, though, it’s important to understand the terminology and strategies behind our key CoPilot formulas. This webinar will review that important information. This lesson will be focused on the CoPilot program and will be available to those who hold a CoPilot by TradeSmith or TradeSmith Platinum account. [Click here to register]( for today’s webinar. Our webinars begin every Tuesday and Thursday at 1 p.m. Eastern and include time at the end for a question-and-answer session. Best of TradeSmith The chart below represents the best-performing open positions over the last two years, as recommended by our software. [Download now on the Apple Store]( [Get It On Google Play]( [866.385.2076](tel:+866-385-2076) | support@tradesmith.com ©TradeSmith, LLC. All Rights Reserved. You may not reproduce, modify, copy, sell, publish, distribute, display or otherwise use any portion of the content without the prior written consent of TradeSmith. TradeSmith is not registered as an investment adviser and operates under the publishers’ exemption of the Investment Advisers Act of 1940. The investments and strategies discussed in TradeSmith’s content do not constitute personalized investment advice. Any trading or investment decisions you take are in reliance on your own analysis and judgment and not in reliance on TradeSmith. There are risks inherent in investing and past investment performance is not indicative of future results. TradeSmith P.O. Box 3039 Spring Hill, FL 34611 [Terms of Use]( [Privacy Policy]( To unsubscribe or change your email preferences, please [click here](. [tradesmith logo]