One of the great things about the stock market is that you can have a fresh start anytime. The easiest way is to do that is to 'mark to market' and treat the stocks you own as if you just bought them at the open this morning. Forgot unrealized losses and gains and start with a clean slate. The first day of the new year is a great time to do that
I'm tired of hearing about what happened in 2021 and am equally tired of hearing the predictions about what lies ahead. The only thing that is certain about the year ahead is that there will be some great rallies, some ugly corrections, and many opportunities in individual stocks. My plan is to trade the action as it develops and forego predictions and expectations.
There is a headline in the Wall Street Journal this morning: "Stocks Face Rockier Path in 2022 as Rate Increases Loom". That is pretty much the conventional wisdom right now and is intended, but 'rocky' action is not a bad thing from a trading standpoint. A rocky market with many ups and downs sounds better than a narrow market with a few big-cap names leading the charge.
The first question we confront as we start 2022 is whether the January Effect will kick in. The January Effect is the tendency of stocks that have been sold at the end of the year for taxes and other reasons, to bounce back as value buyers look for entry points. There are many de-SPACs, biotechnology, growth names, and small-caps hovering near lows that are good values.
Small-caps did very poorly in 2021, but their relative valuation to large-caps is at a 15-year low based on forward PE ratios. In addition, consensus earnings growth is 6% higher than that of large-caps at 14% versus 8%.
Despite all the talk about how great 2021 was for the market, there are plenty of stocks that are wallowing in bear markets and are not technically extended.
There are about 4700 stocks that are over $3 per share with average volume of 100,000 shares or more. Of those stocks,1035 of them, or about 22%, are within 10% of their 12-month lows. Some big-cap examples include Boeing (BA) , Citigroup (C) , Alibaba (BABA) , Tilray (TLRY) , ViacomCBS (VIAC) , Verizon (VZ) , Twitter (TWTR) , ARK (ARKK) , Disney (DIS) , and virtually everything that is SPAC-related.
Stocks are off to a strong start this morning due in part to news of strong deliveries for Tesla (TSLA) and other EV companies.
The start of the new year always has new inflows into pension plans, and there is a desire to start the year on a positive note, so that helps to continue the strong end-of-the-year action.
Good luck and go get 'em.