End of year tax loss selling has historically been a good time to buy junior resource stocks, but speculators would also be wise to seek out summer sales.
Tax loss selling for the year usually begins in late October, as shareholders will sometimes sell underperforming stocks to book a capital loss for the year to offset any capital gains realized. They can then repurchase that same stock after 30 days if the investor believes the long-term prospects for the company are still good.
For junior resource investors and speculators, end of year tax loss selling can be a great time to scoop up some bargains in the space. As sellers race to realize their capital losses before the winter holidays, the cascade of sell orders can, in some cases, temporarily beat down illiquid junior resource stocks by 50% or more. Buyers can then potentially benefit from the rebound that has historically occurred in the resource sector during the first quarter of the calendar year.
That said, summer has also been a good time to buy junior resource stocks but for slightly different reasons. It’s also been a time of year that speculators often overlook.
What’s been called the ‘summer slump’ has historically led to stock prices of junior resource stocks drifting lower during July and August. This is usually caused by low trading volumes and lack of news from companies busy exploring and drilling. Desperate sellers can be forced to take whatever bid price is available.
The summer slowdown tends to peak during the final weeks of August and into Labor Day as many financial professionals take their holidays. This can create attractive buying opportunities in small companies that are thinly traded.
As results from summer drilling begin to be released in September and October, buying interest tends to pick up, which can create short-term profit opportunities for speculators.
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