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It's Time To Buy The Small Cap Losers Of 2018 For Gains Into 2019

Dec. 13, 2018 8:23 AM ETHNNA, MDRIQ, USX, YELL16 Comments
Hawkinvest profile picture


  • It's time to go bargain hunting and accumulate beaten down small cap stocks that can rebound in late December and into January.
  • Small cap stocks could be poised for a big rally into year end according to a JP Morgan analyst.
  • Tax-loss selling pressure will fade by around mid-December and that is when big rebounds could start occurring.
  • Short-sellers who are trying to put off creating taxable gains until 2019, could cause buying pressure as they cover in early January.

At this time of year, it makes sense to start buying beaten-down stocks that are undervalued and being temporarily depressed by tax-loss selling.

Each year I focus on this strategy and after much research, I have found a number of stocks that appear poised for a strong rebound as we get closer to the end of December. Based on my experience, tax-loss selling tends to peak in mid-November and then starts to taper off after the first week of December. Because of this, it makes sense to start accumulating shares now, and of course buy on any dips for the next three weeks or so. Most investors and fund managers have completed selling stocks for tax-loss reasons before the holiday season and for this reason, many beaten down stocks start to rise around mid-December. That's why it makes sense to start buying now and continue accumulating over the next couple of weeks. I expect many of these stocks to start rising by mid-December and then see further gains into January. The end of tax-loss selling removes the temporary excess supply of shares being sold in December, and then there is often a wave of buying in early January that comes from short sellers who are doing their own tax moves by trying to wait to cover their positions in early 2019. By doing this, they can postpone taxable gains for another year.

The combination of the end of tax-loss selling in December along with short sellers buying to cover in early January can lead to some sharp rebounds, especially in small cap stocks which usually get punished the most by tax-loss selling since these stocks are not as liquid and therefore cannot absorb the extra supply of stock as easily as large cap stocks. Due to lower volumes and liquidity, the smaller cap

This article was written by

Hawkinvest profile picture
Long-time stock market investor focused on strategic buying opportunities with dividend and value stocks. This investment strategy has resulted in a near 5 star rating on Tipranks.com and over 9,000 followers on Seeking Alpha. Follow me on Twitter for my latest trading ideas: @Hawkinvest1

Analyst’s Disclosure: I am/we are long USX, MDR, HNNA, YRCW. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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