I've compiled a list of higher-volume Russell 2000 index components trading over $3 with the weakest relative strength heading into year-end. Buy a basket of three, four or five of these issues to take advantage of small-cap seasonality and the end of tax-loss selling pressure. Keep total dollar exposure in each component uniform to manage risk across the basket.
The basket should be held in one unit into the third or fourth week of January, with a total dollar stop loss, which sells all positions at once if the trade fails. In other words, don't try to time the market and reconfigure the basket because one stock has a bad day. When the target date is reached, close out all positions or keep a few winners to play into February and March.
This list of Russell 2000 losers could make a basket trade worth the risk:
The turnaround play is a great way to trade the January market, but an even better strategy is to find the next hot stock while it's still in its embryonic stage, waiting to be discovered by the chat room crowd. For this strategy, I flipped through weekly charts of Russell components, picking out issues that look poised for even higher prices.
These Russell 2000 small-caps could break out in early 2010:
* Uranium Energy (UEC Quote)
* Ulta Salon (ULTA Quote)
* Aruba Networks (ARUN Quote)
* Valassis Communications (VCI Quote)
* China Information Security Technology (CPBY Quote)
* SuccessFactors (SFSF Quote)
* Switch and Data Facilities (SDXC Quote)
* Ticketmaster (TKTM Quote)
* BPZ Resources (BPZ Quote)
* Omnova Solutions (OMN Quote)
