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Morning Commentary

SIFTING THE ASHES

By Charles Payne, CEO & Principal Analyst
12/31/2021 9:21 AM

It was another lazy late December session. I took off early to take my granddaughter to see “SING 2,” which was amazing (I think all the children are still upset because I sang so much during the movie – but the man only said “no talking during the movie”). There were more advancers on the NASDAQ Composite (see bottom fishing), but market breadth was still ugly.

Market Breadth

NYSE

NASDAQ

Advancing

2,066

2,916

Declining

1,295

1,721

52 Week High

162

105

52 Week Low

52

172

Up Volume

1.79B

2.47B

Down Volume

824.35M

3.29M

S&P 500 Map

Bottom Fishing Has Begun

What Is the January Effect?

The January Effect is a perceived seasonal increase in stock prices during the month of January. Analysts generally attribute this rally to an increase in buying, which follows the drop in price that typically happens in December when investors, engaging in tax-loss harvesting to offset realized capital gains, prompt a sell-off.

The January Effect is a hypothesis, and like all calendar-related effects, suggests that the markets as a whole are inefficient, as efficient markets would naturally make this effect non-existent. The January Effect seems to affect small caps more than mid or large caps because they are less liquid.

Investopedia

I saw a lot of big-time buying of the most beaten-down names in the market yesterday. Bottom fishing is what I group this with - the so-called January Effect, where investors deep-dive the ash heap in search of opportunities. How stocks got into that ash heap doesn’t matter as much as upside potential.

That potential is determined based on the unrealized potential of an industry, product, service, or other factors that once had the shares changing hands at much higher share prices. It could just be folks getting ahead of the “Greater Fool Theory.” A lot of stocks sold off excessively late this year and were only exacerbated by heavy tax-loss selling to cover big-time gains banked in the first half of the year.

China Rebounds

I’m reading a lot of ugly stories on China, from its lack of energy sources to its huge push for all the coal it can get, to its undrinkable water. This might be good news for businesses there, once they pay off the shakedown from President Xi, he could relent in his “common prosperity” campaign to focus on other issues, such as portable water. 

There is plenty of upside room as the Golden Dragon rose 9.4% on the day but is still down 42% in the past year.

Chart

China’s Internet names looked fantastic yesterday, powering the KraneShares CSI China Internet ETF (KWEB) +8.9%, but it is still off 52% in the past year as many of its components have been in Xi’s crosshairs.

Chart

Beaten Down in America

There is a potential war on capitalism in the United States that mirrors China’s “common prosperity.” Here it goes by the name of “shared prosperity,” and only a few folks in Congress stand in the way of it becoming tyrannical.  Ironically, President Xi of China says he does not want to become socialist in the way Europe has, and he actually says he wants everyone to be wealthy, which sounds better than “higher minimum wage.”

I will have a much greater list in the New Year and on the first Payne’s Perspective of 2022, but some names that stood out yesterday include:

If you are not a current subscriber to our Premium Hotline Service, email Info@wstreet.com to join.

Portfolio Approach

Yesterday, we closed a position in Consumer Staples and added a new position in Communication Services in our Hotline Model Portfolio. 

Happy New Year

We are not posting an Afternoon Note today. Thank you so much for believing in our work and recognizing the effort. I look forward to a fruitful year in 2022. 

Note: Yearly track records are mostly fake marketing gimmicks designed by Wall Street to get more of your money and overlook long-term failure. There are seasonal realities, some driven by things like tax policy.  But remember this is a life-long endeavor, and we are all just getting started.

God Bless


Comments
God bless you and your family

Charles Trantham on 12/31/2021 9:43:08 AM
Happy New Year to you and your family, Charles. Love your commentaries. You are genuine!

Arun Thiyagarajan on 12/31/2021 10:09:59 AM
If a man doesn't have his music, he doesn't have anything. Happy New Year and may you and your family be Blessed in 2022.

Garry Leichliter on 12/31/2021 10:47:38 AM
 

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