The week between Christmas and New Year's Day tends to have a positive bias, but it is also a week with many outliers. The thin seasonal trading and various end-of-year pressures can produce some surprising and unusual movements.
This year tax issues are more prominent than usual due to the outsize gains in the indices, and there is also an increased focus on positioning with the indices quite extended following the run-up from the early October lows.
It is not unusual for there to be at least one bout of selling as some fund managers and market players look to start the next year with high levels of cash. Many find that starting with a clean slate is psychologically positive.
There should be some good trading in individual stocks in the next four days as the thin volume and end-of-year pressures cause some mispricing. There also should be interest in "January Effect" plays, which are stocks that are under pressure due to tax-loss harvesting but then bounce back in the new year.
My trading plan for the rest of 2019 is as follows:
- Keep accounts as close to highs as possible. I want to start 2020 at a high point and that means not letting things slip at this point. I'll be quick to take stops and lock in gains if volatility picks up or if there is a bout of selling as I mentioned.
- Look for stocks that are attracting high levels of interest from traders and may offer some short-term trade opportunities. Holiday trading is in full force and that means there will be some hot pockets of action.
- Dig for some January Effect plays. I'm mentioned a few such as Personalis Inc. (PSNL) , SmileDirectClub Inc. (SDC) and Slack Technologies Inc. (WORK) . There are quite a few broken initial public offerings (IPOs) and other poorly performing stocks that may be opportunities.
This is the time of the year when many people name their top pick for the year ahead. There is a big difference between finding a stock that is a safe investment for 2020 and one that is likely to be among the top-performing stocks. For example, Barron's named Dell Technologies Inc. DELL as a top stock for the year ahead. Perhaps DELL will perform well, but there is little chance that it is going to be one of the top performers. It is not likely to collapse like some speculative small-caps, but there will be hundreds of stocks that will post substantially higher returns.
I'll be posting my top pick for 2020 in the next few days.