The January effect
is well-known among traders and finance professors. Years ago, it was
discovered that small-cap stocks tended to outperform in the month of
January. Of course, it is possible to prove almost anything with data,
so we should only trade based on ideas that are supported by logic, and
there is a logical reason why we should see this pattern.
Experts believe that investors sell their
losers before the end of the year and that creates bargains. Small-cap
stocks are more volatile and would be expected to sell off more under
the pressure of
tax selling. Since the selling
will probably push some of these stocks well below their
fair value, a quick rebound after the end of the year is likely to occur.
Since
the January effect was first noticed in the 1940s, it seems like it has
been occurring earlier and earlier. In most years, small caps now
outperform in December as well, and with the extraordinary focus on
taxes
this year related to news about the fiscal cliff, now seems like a good
time to start hunting for bargains among small caps. To reduce risk, we
want to find stocks that are beginning to recover after a sell off. We
found two drug stocks that look like great trades.
Amicus Therapeutics (NASDAQ: FOLD) is a company with several drugs in various stages of the approval process. The company is already generating revenue and has a
partnership with GlaxoSmithKline (NYSE:
GSK) that is doing well in the $1 billion
market
for the treatment of Fabry disease (a rare disease that can lead to
early death from heart or kidney failure). The company is losing money
for now, but analysts have set a
price target of $8.40 on FOLD, more than 45% higher than the recent price.
The chart supports the idea that gains are likely.
The price has bounced off support and the pattern shows a price target of $7.16, about 25% higher than the current level. The
stochastics indicator
at the bottom of the chart confirms the buy, and the Bollinger
Bandwidth in the center of the chart shows that a large price move is
likely to occur soon.
The Bollinger Bandwidth is near a six-month
low and volatility often increases when this indicator declines. While
the Bollinger Bandwidth does not forecast the direction of the price
move, other indicators do point to potential gains in FOLD.
Recommended Trade Setup:
-- Buy FOLD at the
market price-- Set stop-loss at $5.30
-- Set initial price target at $7.16 for a potential 25% gain in two months
Raptor Pharmaceuticals (NASDAQ: RPTP) shows
a similar chart. The pattern provides a price target of $6.61, which is
about 27% above the current price level. Again we see a low Bandwidth,
indicating that increased volatility is likely, and a
stochastics buy signal.
Analysts
that follow RPTP have set a price target of $9, a possible gain of more
than 70% from where it's trading now. The company should make a big
move before late January when the Food and Drug Administration (FDA) is
expected to announce an approval decision for a drug RPTP is testing.
This announcement could lead to a large gain if the news is favorable or
a large decline if the drug is not approved or requires additional
testing. The risk should be managed with a stop-loss at the 20-day
moving average (MA), currently at $4.73 and moving higher along with the stock price. Raise the stop once a week if the MA continues to rise.
Recommended Trade Setup:
-- Buy RPTP at the market price
-- Set initial stop-loss at $4.73, and use the 20-day MA as a
trailing stop if the price rises
-- Set initial price target at $6.61 for a potential 27% gain in two months
These
two stocks could benefit from the January effect and they are each buys
even without that seasonal tendency. RPTP has more risk than FOLD, but
also offers much greater potential long-term gains if the company
receives good news from the FDA. Because the risks in these stocks, and
small caps in general, are so large, be sure to use stops when trading
them.
Today
billionaire Eric Sprott spoke with King World News about his latest
silver offering and how much physical silver it will vacuum out of the
market. He also issued further warnings on the crumbling financial
system. This is the third and final in a series of interviews with
Sprott which reveals what is going on behind the scenes with the
increasingly desperate Western central planners and their gold and
silver price suppression scheme.
Today
John Embry spoke with King World News about the recent action in gold
and silver, and what will overcome the massive paper short positions in
the silver market. Here is what Embry, who is chief investment
strategist at Sprott Asset Management, had to say: “I was struck by a
comment from Tim Geithner that the US is going to be fazing out pennies
and nickels in early 2013. The reason he gave was that it costs a great
deal more to make them than they are technically worth.”
Today
billionaire Eric Sprott spoke with King World News about key players on
the Comex that may be standing for delivery of as much as a staggering
40,000,000 ounces of silver. This is the second in a series of
interviews with Sprott that will be released today which reveals what is
going on behind the scenes with the increasingly desperate Western
central planners and their gold and silver price suppression scheme.