Seasonal trading theories are a dime a dozen.
- The first half of the year tends to bring better returns that the second half.
- Dow Jones Industrial Average stocks whose price was beaten down in the previous year have a tendency to outperform the rest of the DJIA in the following year.
- There’s even the theory that markets in the northern and southern hemispheres predictably succumb to the winter blues, or Seasonal Affective Disorder.
- There’s the January Effect -- that expected time of year when tax conscious investors sell stocks to write off losses against capital gains. The “tax sell-off” would depress stock values lower until buyers came back in early January.
- There’s the “Sell in May and go away” idea that hasn’t worked so well.
And while some are ridiculous and unworthy of attention, we have three favorites, including the “New Years Resolution,” “the Holiday Rally,” and the Dogs of the Dow.
The Dogs of the Dow 2018
With the Dogs of the Dow, you’re simply buying the highest yielding 10 Dow Jones stocks that fell out of favor, investing an equal amount in each, liquidating by January 1 of the following year, and repeating for nearly predictable rewards.
Even better, it's easy to use, and it performs well.
The way you pick the Dogs is very simple.
When the year starts, look at the top 10 yielding dividend stocks in the Industrials. Invest equal amounts of money in all 10 stocks. Then, hold onto those stocks throughout the year. At the end of the year, we do it all over again.
While some, including Barron’s once reported that the “Dogs of Dow Investing Strategy no Longer Works,” that’ not true. Others have noted that research confirmed back in 2007 that the Dogs of the Dow is no longer a successful concept.
And still others argue investors are barking up the wrong tree with the theory.
While 2007 was flat, followed by a 38.8% decline in the Dogs for apparent subprime reasons, the Dogs have returned a gain every year since.
In fact, in 2009, they were up 16.9%. In 2010, they jumped 20.5%.
In 2011, there were up 16.3%. In 2012, they jumped 9.9%. In 2013, they returned 34.9%. In 2014, they returned 10.8%
In 2015, they did okay, returning just 2.6%.
In 2016, the Dogs returned 16% on average. So the idea that the theory is dead is laughable.
So far, in 2017:
- Verizon (VZ) is nearing breakeven from where it started the year at $52
- Pfizer (PFE) ran from $32 to $36 so far
- Chevron (CVX) ran from $116 to $119 so far
- Boeing (BA) ran from $150 to $276
- Cisco (CSCO) ran from $29 to $37
- Coca-Cola (KO) ran from $40.50 to nearly $46
- IBM (IBM) fell from $160 to $154
- Exxon Mobil (XOM) fell from $88 to $83
- Caterpillar (CAT) ran from $90 to $141
- Merck (MRK) fell from $59 to $55
While there are some laggards in there, the 2017 Dogs have done well overall.
Even the ELEMENTS Dogs of the Dow ETN (DOD) did okay, running from a January 2017 low of $18 to $22. Believing the Dogs will do even better in 2018, we can always buy the ETN now.
While the 2018 Dogs of the Dow have not yet been released, one of them is likely to still be Merck (MRK), given its year to date performance. Better yet, Merck is greatly oversold at this point and could refill a bearish gap at $62 with patience.
What we can do here is buy the MRK stock as well as the MRK January 18, 2019 57.50 call options. By buying them so far out, we can just set it and forget it for a year and wait for a potential rebound to higher highs.
New Years Resolution
This is the time of year when we buy one beaten down diet stock and watch it jump around the time of year when Americans (about 90% of them, according to Johns Hopkins Medicine) make their New Year's resolution to lose weight, diet, and exercise more, which usually ends in passing on the resolution until next year.
We all have weight to lose. We get motivated and say next year will be different. We join the gym. We join a weight loss clinic. We’re really going to do it this year.
In many years, shares of Medifast (MED) have moved higher late in the year. Even Weight
Watchers (WTW) had a history of running a big higher in the latter part of the year.
The Holiday Rally
We can even watch for potential rallies higher in retailers and shipping stocks between Black Friday and Christmas. For example, Black Friday 2017 was very good to related stocks.
More than 174 million Americans went shopping between Black Friday and Cyber Monday 2017, according to the National Retail Federation (NRF), as compared to expectations for 164 million. In fact, U.S. retailers racked up $2.87 billion on Thanksgiving, and another $5.03 billion on Black Friday, according to Adobe Analytics. Cyber Monday sales hit $6.59 billion – the largest online total for a shopping day in the U.S.
It’s part of the reason that shares of Amazon.com (AMZN) soared from $980 in October 2017 to more than $1,200 in November 2017.
Even brick and mortar retailers that boosted their online efforts have done well, even as store foot traffic fell 2% year over year as Americans ordered online.
- Macy’s (M) ran from $17.50 to $22
- Gap (GPS) ran from $25.50 to $31
- Kohl’s (KSS) ran from $41 to $46
- C. Penney (JCP) ran from $2.50 to $3.50
- Wal-Mart (WMT) ran from $90 to $97
Even the shipping stocks picked up good momentum. UPS for example ran from $113 to $121. FedEx (FDX) ran from $217.50 to $230. We can even watch for post-holiday season pullbacks. For example, after exploding higher in 2016, UPS fell from $117.50 to $100. In 2015, the stock fell from $97.50 to $80.
At this point, many of these holiday stocks have run up nicely. We may be able to trade the pullbacks in each shortly and then go long again. We’ll keep you posted on how to trade.
Disney Company (DIS) stock -- $102.41
DIS January 19, 2018 105 calls -- $1.25 – exited half
Hold the stock. Sold to close half of the call option yesterday.
AT&T (T) stock -- $34.45
AT&T January 19, 2018 34 calls -- $1.30 – exited half
AT&T February 16, 2018 34 calls -- $1.55 – exited half
Hold the stock. Sold to close half of the call options yesterday
AeroVironment Inc. (AVAV) stock -- $42.80
The stock last traded at $45.58. Hold a bit longer.
Best Buy (BBY) stock -- $56.05
BBY December 15, 2017 57.50 calls -- $2.47
Shares of BBY are now up to $59.61, as we near the holiday season. The calls are now up to $3. Hold both positions.
DIA December 15, 2017 230 puts – $2.72
Pro Shares Ultra Short S&P 500 (SDS) -- $45.15
We recommended these trades the other day as a hedge against our long positions. Both trades are still on hold at this point.
First Data (FDC) stock -- $17.80
We continue to hold with the stock now trading at $16.45.
Cypress Semiconductor (CY) -- $15.37
The stock is now up to $16.01 and is a hold.
Vale S.A. (VALE) stock – $9.80 entry
The stock is now up to $11.10 and remains on hold.
Sturm Ruger (RGR) stock -- $52.50
American Outdoor Brands (AOBC) stock -- $15.70
AOBC January 19, 2018 17 calls – 75 cents – exited half
Each of these positions remains on hold for now. RGR is back at $54.75. AOBC is picking up momentum again, too, now trading at $14.03.
Carnival (CCL) -- $66.50
We already exited half of the calls for a win of 67% in September 2017. We exited the second half of the calls at a loss, but still hold the stock with a price target of $70.
Advanced Micro Devices (AMD) -- $13.30 entry
The stock last traded at $10.89 and remains on hold.
- Exited half of Zillow Group (Z) for 8% gain on August 8, 2017
- Exited half of Zillow Group (Z) November 45 calls for 44% gain on Aug 8, 2017
- Exited half of CELG October 2017 130 calls for 150% on August 31, 2017
- Exited second half of CELG October 130 calls for 143% on Sept 1, 2017
- Exited GOLD Sept 92.50 put and 95 put for a full loss
- Exited half of LOW September 2017 75 calls for 71% on Sept 7, 2017
- Exited VNDA stock for 8% on September 8, 2017
- Exited VNDA October 2017 16 calls for 35% on September 8, 2017
- Exited second half of LOW October 2017 75 call for 92% on Sept. 8, 2017
- Exited LOW stock for 4% on September 8, 2017
- Exited half of FEYE stock for 13% gain on September 12, 2017
- Exited half of FEYE Dec. 14 calls for 68% gain on September 12, 2017
- Exited half of FEYE Dec. 15 calls for 63% gain on September 12, 2017
- Exited half of CCL October 2017 67.50 calls for 67% on September 13, 2017
- Exited VIX October 2017 15 put for 18% on September 13, 2017
- Exited VIX October 2017 14 put for 17% on September 13, 2017
- Exited ZIV stock for 2% on September 13, 2017
- Exited SVXY stock for 9% on September 13, 2017
- Exited AMD September 2017 13 calls for a full loss, expired worthless
- Exited second half of FEYE stock for 16% gain on September 14, 2017
- Exited second half of FEYE Dec. 14 calls for 100% gain on September 14, 2017
- Exited second half of FEYE Dec. 15 calls for 89% gain on September 14, 2017
- Exited CRUS stock for a loss of 7% on September 22, 2017
- Exited CRUS October 2017 60 calls for a full loss on September 22, 2017
- Exited half of AJRD November 2017 30 calls for a gain of 200% on Sept 22, 2017
- Exited half of AJRD November 2017 30 calls for a gain of 168% on Sept 22, 2017
- Exited AJRD stock for a gain of 13% on September 22, 2017
- Exited half of AOBC January 2018 17 calls for a gain of 47% on Oct. 4, 2017
- Exited half of EXPE October 145 calls for 22% gain on October 6, 2017
- Exited CCL October 2017 67.50 calls for a loss of -37% on October 17, 2017
- Exited half of Shopify Inc. stock for a gain of 10% on October 25, 2017
- Exited half of SHOP November 105 call for a gain of 79% on Oct 25, 2017
- Exited TRUE stock for a loss on November 7, 2017
- Exited TRUE January 2018 16 calls for a loss on November 7, 2017
- Exited half of DIS December 15, 2017 100 calls for 44% on Nov. 8, 2017
- Exited SHOP stock for a -10% loss on Nov. 9, 2017
- Exited SHOP November 105 calls for a full loss on Nov. 9, 2017
- Exited DIS stock for a gain of 5% on November 13, 2017
- Exited second half of DIS Dec 2017 100 calls for a gain of 86% on Nov 13, 2017
- Exited half of DIS Jan. 19, 2018 105 call for 100% gain on November 30, 2017
- Exited half of AT&T January 19, 2018 34 call for a 55% gain on Nov 30, 2017
- Exited half of AT&T February 16, 2018 34 call for a 97% gain on Nov 30, 2017
Ian L. Cooper