FREDAlert!
Volume 3, Issue 10
December 27, 2011
Tax Loss Bounce Stocks
We wanted to refine our list of Tax Loss bounce, or January Effect, candidates. A brief description of the January Effect rules we use follows.
First, the best environment for a successful January effect is a strong up year – this year does not qualify as what would typically be the best environment for this trade.
Second, look for “big name” stocks that have been sold aggressively and are making new lows as close to the end of the year as possible, but in any event certainly after September. This hopefully insures that stocks will be near lows for the year.
Third, there are generally two opportunities to buy the names – in the second week, and last week of December.
Fourth – the holding period most widely used is through the end of January. It does, however, pay to look at resistance areas to sell the names if they are working out.
In addition to the four names below, we looked at Ford (F) and General Electric (GE), but those names have already rallied off of the mid-December low into resistance – for this reason they are now less likely candidates. At the same time, ORCL reported bad earnings that hit the stock in December – ORCL is a big enough name that it becomes a strong candidate for this trade.
- Bank of America (BAC): Buy between 5.55 – 5.00, objective 6.20 – 6.80 sell January 31.
- Micron Technology (MU): Buy between 6 – 6.50, objective 7 – 7.30 sell January 31.
- Sprint Nextel Corp (S): Buy 2.10 – 2.40 objective 2.80 – 3, sell January 31.
- Oracle Corp. (ORCL): Buy 24.60 – 25 objective 27 – 28.60, sell January 31.
