Yesterday morning, a very good friend of mine revealed to me that he lost about $52,000 during Wednesday’s wild market downswing.
I feel his pain. Many of my strongest stocks saw powerful reversals this week as well. During this week’s carnage, hardly any equity on the NYSE or Nasdaq was spared. Even Apple Inc. (NASDAQ: AAPL) owners, who were up 4% on Wednesday while the rest of the tech market crashed, are giving back most of those gains already.
One would think — with new COVID fears surrounding the omicron variant, hawkish talk on speeding up tapering from the Fed, less-than-stellar GDP projections, inflation, overstretched stock valuations, and more — the big crash is just moments away.
But it’s not. Here’s why.
History Tells a Different Story
Simply put, December is one of the strongest months for stocks, year in and year out. For the past 70 years running, the S&P 500 and Dow Jones Industrial Average have gained 1.5% in the month of December. Additionally, since 1971, the Nasdaq has averaged a 1.6% return in December.
Another interesting statistic is the outsized success small-cap stocks have in December. The Russell 2000 and Russell 1000, on average, gain 2.1% and 1.3% respectively this month.
Making matters even more interesting — and potentially lucrative — is the fact that we also have a triple witching day on the calendar this month. If you’re unfamiliar with the concept, a triple witching day is a market event when three different types of options contracts expire on the same day. These are:
- Stock Options — Options contracts taken out on a specific underlying equity.
- Index Options — Options contracts taken out on a stock index, such as the Dow Jones.
- Index Futures — Options contracts taken out on an equity index like the Chicago Mercantile Exchange’s (CME) E-mini S&P 500 ESG Futures.
On a triple witching day, which only happens once a quarter, huge swings can occur in the market — both on the actual day and the days leading up to the event. This is because many institutional investors will be exercising or rolling over their contracts at that time, which means huge volumes of cash and stock trading hands. The market moves on volume, and we have the chance at some huge returns if we play our cards right. Q4’s triple witching day falls on December 17.
Mark it on your calendar!
We also have the Santa Clause rally from December 27 to January 2, 2022, to look forward to. This brief rally historically produces a 1.3% return over that seven-day time frame. Simply put, December’s seasonal trends are in our favor.
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That said, it’s important to note nothing is a sure thing. There have been some really bad Decembers as well. The worst-performing December since 1950 was in December 2018. At the time, the S&P 500 lost over 10% of its value, and the Dow and Nasdaq suffered similarly.
I like to bring this up if only to remind you that while the “trend is your friend,” sometimes friends can stab you in the back.
That said, I don’t anticipate a down December this year. I think we have a lot of opportunities in front of us, and I don’t expect a 10%–15% correction until next year when the Fed begins tapering. But more on that later.
Where Am I Putting My Money?
We’re up big on the year on the recommendations I’ve made here in the pages of Energy and Capital as well as in our premium service Bull and Bust Report and my newest service, Naked Trades. These include:
- 43% on LSB Industries
- 84% on Advanced Micro Devices
- 50% on Carrier Global
- 295% on Starbucks calls
- 1,200% and 590% on AMD calls
The full list goes on and on.
Truth be told, most of my money is right where I want it to be — in high-growth tech names and tech-focused funds. But if your portfolio is heavy in commodities like oil and gas or the value trade that was hot earlier in the year, I think you need to rotate some of that capital into the tech sector for December. Many of these stocks are pretty beaten down right now, and I doubt you’ll ever get better entry points for a lot of these tech names.
It’s like a Black Friday sale for equities!
The name I like most today is Square Inc. (NYSE: SQ). The company is a mobile payments processor and, much like its main competitor PayPal, this stock is about as beaten down as a stock can get. Shares are currently trading 34% off their 52-week high, and with Jack Dorsey leaving Twitter to give Square’s growth his full attention, I think grabbing a slice of the future of payment processing right now is a no-brainer.
Oh, and don’t forget about select healthcare stocks either. If the omicron variant does in fact become worth worrying about, this new COVID killer (and the company behind it) could soar in value!
To your wealth,
Sean McCloskey
Editor, Energy and Capital
@TheRL_McCloskey on TwitterAfter spending 10 years in the consumer tech reporting and educational publishing industries, Sean has since redevoted himself to one of his original passions: identifying and cashing in on the most lucrative opportunities the market has to offer. As the former managing editor of multiple investment newsletters, he's covered virtually every sector of the market, ranging from energy and tech to gold and cannabis. Over the years, Sean has offered his followers the chance to score numerous triple-digit gains, and today he continues his mission to deliver followers the best chance to score big wins on Wall Street and beyond as an editor for Energy and Capital.
