Seasonal rotations into bitcoin ETFs like Grayscale Bitcoin Trust and stocks like Super Micro Computer make it a great time to put your portfolio through what Jeffrey Hirsch, editor of the Stock Trader's Almanac, calls a "sober October."
"Most of those bullish seasonal sector periods begin in October," Hirsch said to Investor's Business Daily's "Investing with IBD" podcast. He sees sector rotation opening up chances for investors to get exposure to bitcoin strategies and underdog stocks.
Hirsch says the October seasonality comes right before year-end rallies and after the hot summer markets have cooled down. The rotation is not an exact science and can vary each year, says Hirsch. But because events like the presidential election are fixed into four-year cycles, the market usually maintains its tempo for these rotations.
Check out this week's podcast episode for the details of Hirsch's analysis and what could lie ahead for the market.
Audio Version Of Podcast Episode
Hirsch says he typically sees a seasonal Q4 rally for bitcoin, and has been particularly interested in Grayscale Bitcoin Trust. The ETF is very well correlated with the underlying cryptocurrency and works as a bitcoin strategy, says Hirsch.
Hirsch says following seasonality trends also help with "cleaning house," getting rid of underperforming stocks in one's portfolio. The move can help boost a portfolio's performance in aggregate, and even highlight stocks set to perform well. Hirsch first bought Super Micro Computer, the artificial intelligence-focused server and storage maker, as part of an initial basket of stocks. The company stood out by surviving repeated portfolio cullings.
"The key there was buying the whole basket and letting yourself get stopped out of the trades that weren't working, and sticking to the ones that were," said Hirsch. "SMCI was one of them."
SMCI stock now is pulling back once again. It's holding above the lows of its current base structure but not by much.
Additionally, earnings for SMCI are six days away. That presents a notable risk for any would-be buyers or those whose profit cushions are dwindling.
Finding Underdogs And Bitcoin Strategies
When the right season approaches, Hirsch says he also looks for underfollowed stocks by sifting through the names with tools like IBD's MarketSmith and other charting software. "We're looking for stocks that are underfollowed," said Hirsch. He looks at stocks with clear growth patterns, accelerations in earnings and revenue and healthy metrics like good price-to-earnings ratios and cash flow. Stocks should ideally be growing and tracking the market, not falling behind or ahead of market averages, said Hirsch.
For similar stocks and bitcoin strategies, Hirsch prefers the underdogs, names that analysts tend to overlook despite strong fundamentals. "All things being equal, we're going to look at ratings, and we don't care what the analysts are saying," said Hirsch. "If the two stocks are equal, and one is followed by four or five analysts and the other is followed by 20, we're going to go for the one followed by less analysts."
Why The Story Behind Stocks Doesn't Matter
Ignoring the story behind the stock can sometimes yield surprising results. "Years ago, we ended up picking up on Scott's Miracle-Gro," said Hirsch. As it turned out, the company had just acquired a hydroponics company popular with the cannabis industry — right as the cannabis craze broke out in 2018. "They were making money with that purchase," said Hirsch.
"All that revenue and growth came from the cannabis industry when cannabis was hot."
