Seasonal rotations to Bitcoin ETFs like Grayscale Bitcoin Trust (GBTC) and actions like Super microcomputer (SMCI) make this the perfect time to subject your portfolio to what Stock Trader’s Almanac editor Jeffrey Hirsch calls a “sober October.”
“Most of these seasonal bullish sector periods start in October,” Hirsch told Investor’s Business Daily’s “Investing with IBD” podcast. He believes that sector rotation provides investors with the opportunity to gain exposure to Bitcoin strategies and overlooked stocks.
Hirsch says October seasonality comes just before year-end rallies and after hot summer markets cool off. Rotation is not an exact science and can vary each year, Hirsch says. But because events like the presidential election are set on four-year cycles, the market generally maintains its pace for these rotations.
Check out this week’s podcast episode for more details on Hirsch’s analysis and what could lie ahead for the market.
Audio version of the podcast episode
Hirsch says he typically sees a seasonal bitcoin rally in the fourth quarter and is particularly interested in Grayscale Bitcoin Trust. The ETF correlates very well to the underlying cryptocurrency and works like a Bitcoin strategy, says Hirsch.
Hirsch says following seasonal trends also helps “clean house,” getting rid of underperforming stocks from one’s portfolio. This decision can help improve a portfolio’s overall performance and even highlight stocks that are likely to perform well. Hirsch first bought Super Micro Computer, the maker of artificial intelligence-focused servers and storage, in an initial basket of stocks. The company has stood out by surviving repeated portfolio selections.
“The key was to buy the whole basket and allow yourself to be priced out of the trades that weren’t working, and stick with the ones that were,” Hirsch said. “SMCI was one of them.”
SMCI stock is falling again. It’s holding above the lows of its current base structure, but not by much.
Additionally, earnings for SMCI are six days away. This presents a notable risk to any potential buyer or those with diminishing profit margins.
Finding Bitcoin Underdogs and Strategies
When the good season approaches, Hirsch says he also looks for underfollowed stocks by sifting through names using tools like IBD’s MarketSmith and other charting software. “We look for underfollowed stocks,” Hirsch said. It looks at stocks with clear growth patterns, earnings and revenue accelerations, and healthy metrics such as good price-to-earnings ratios and cash flow. Ideally, stocks should grow and follow the market, without lagging or ahead of market averages, Hirsch said.
For similar stocks and Bitcoin strategies, Hirsch prefers underdogs, names that analysts tend to overlook despite strong fundamentals. “All things being equal, we’re going to look at the ratings, and we don’t care what the analysts say,” Hirsch said. “If the two values are equal, and one is followed by four or five analysts and the other by 20, we will opt for the one followed by fewer analysts.”
Why the story behind actions doesn’t matter
Ignoring the story behind the title can sometimes yield surprising results. “Years ago we finally understood Scott’s Miracle-Gro (SMG),” Hirsch said. It turned out that the company had just acquired a hydroponics business popular with the cannabis industry – just as the cannabis craze broke out in 2018. “They were making money off this purchase,” Hirsch said.