Jeffrey Hirsch of the Stock Trader’s Almanac joined the Investing with IBD podcast this week to discuss historical stock market patterns in postelection cycles. Plus, we take a look at several potential ideas, including software stocks Avid Technology (AVID) and Amdocs (DOX).
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Indexes Hit Record Highs; Top Software Stocks Notch Gains
The Nasdaq composite outperformed in the stock market today as the Biden administration revealed more plans for Covid relief and vaccine rollouts.
The tech heavy index gained 0.6% to close at a new high of 13,530.92. This comes after a 2% rise on Wednesday. Overall, the Nasdaq is up a strong 4.1% for the week.
“Tactically, fundamentally and seasonally things are pretty bullish right now,” Hirsch said of the current market action. “January is still one of the strongest months of the year.”
The S&P 500 advanced just 0.03% Thursday while the Dow saw gains dissipate at the close, finishing down fractionally.
Among software stocks, Leaderboard member Microsoft (MSFT) saw a second straight day of gains after announcing a partnership with automaker General Motors (GM) on driverless cars. Microsoft stock jumped 4% on the Jan. 20 news and is up 5.8% for the week as it inches closer to a 227.28 buy point.
Fellow software stock and IBD 50 member Cadence Design Systems (CDNS) fell 1% Thursday, but remains in a buy zone after clearing a three-weeks-tight entry on Wednesday.
Seasonal Market Indicators
In addition to the current market, Hirsch also discussed seasonal market indicators. He explained the ‘January trifecta’ of stock signals he tracks at the Stock Trader’s Almanac. These three indicators include the First Five Days indicator, the January barometer and the Santa Claus rally.
“It’s basically an indication that if people aren’t buying at that period of time, it’s a little bit of a warning sign for what’s going on in the year,” Hirsch said.
Hirsch also looked at historical market data to break down how the indexes fared in postelection cycles of the past. Listen to the full podcast to hear Hirsch explain his research.
Software Stocks To Watch
Finally, Hirsch offered several potential stock ideas, including software stocks Avid Technology and Amdocs.
Avid Technology Stock
One of the software stocks on Hirsch’s watchlist is Avid Technology. The Massachusetts-based tech company has been on a strong, steady climb since breaking out of a cup-with-handle base in October.
Shares have gained 93% since clearing that 9.27 handle buy point. Additionally, Avid stock has consistently found support above its 21-day line over the past few months, a sign of support.
“(Avid stock) is at the forefront of the digital media revolution,” Hirsch said. “And it boasts a pretty stable of industry leading software and partnerships.”
Another positive sign? Avid stock has a bullish relative strength line hitting new highs. But shares are extended. Investors should wait for the stock to pull back to a proper entry before buying.
Amdocs Stock
Amdocs stock is another name on Hirsch’s list of software stocks to watch. The entertainment software provider broke out of a lopsided cup-with-handle base in late 2020, several weeks after gapping up 5% on Nov. 11 earnings. Since clearing a 67.70 buy point, Amdocs stock has traded tightly. It’s notched a 5% gain since clearing the handle entry.
Amdocs stock has held above its 10-day moving average along its move. Investors should keep in mind the company is set to report earnings on Feb. 2. Holding or entering a stock in earnings season can be tricky, especially if there is just a small profit cushion. Small gains can quickly turn to double-digit losses if the stock has a poor reaction to the quarterly report.
Other Stocks Of Interest
Listen to the full podcast to hear the complete list of Hirsch’s stock ideas. Additional stocks include OSI Systems (OSIS), AeroVironment (AVAV) and LeMaitre Vascular (LMAT).
Interested In Software Stocks?
If you’re looking for the next top stocks primed to make big moves, check out IBD’s Stock Lists page. To get IBD’s real-time assessment of leading names in software stocks like Microsoft stock, check out IBD’s Stock Checkup page.
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