As the editorial notes, it’s tough to be a buyer this time of year. Tax loss selling as a major feature of the junior resource sector and so is generally weak Q4 gold sentiment. You shouldn’t be buying just because something is cheap but cheap is better than dear if it’s a stock you already like for other reasons. I’ve noted a few I like in the updates.There wasn’t a lot of hard news since the last issue but I’m expecting results from several companies in the next couple of weeks. Some companies may be tempted to wait until January if they don’t have results back by the end of November. I’m not sure that’s the best plan but I wouldn’t be surprised to see it.

Note the updates that come from meetings with management at MIF rather than news releases per se. That’s a big part of the reason for attending events like MIF. The next one is coming up in January. See you there!

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It’s that time of year again. Stocks you follow seem to fall for no reason. Issues that recently had great looking market depth, with lots of bids stacked up below the current trading level, suddenly seem orphaned. Where did all the buyers go? It’s tax-loss season.

This time of year, traders are going through their portfolios (or should be) deciding which holdings, if any, should be sold to generate capital losses that can be used to reduce total capital gains for the year or carried forward to be deducted against future gains. Tax loss trading gets the most media coverage, but tax gain trading can also influence the timing of trades. Some traders prefer to hold large winners into January – if they expect the price to stay stable or better – to defer the recognition of the gain until the next tax year.

So just how big a thing is tax loss season, and should it inform your own trading decisions? The influence of tax loss selling will increase with the volatility of a given stock and decrease with the liquidity. Put more simply, stocks that had the biggest price moves earlier in the year, more specifically stocks that had large positive moves followed by big drops in price, will see more tax loss selling. Stocks that have less trading volume will be impacted by tax loss selling the most in terms of percentage price change, as there is less liquidity to absorb it.

You certainly see the impact of tax-loss selling with individual stocks, and it’s greater with smaller, low liquidity stocks like those that dominate the TSX Venture index. Even so, tax-loss trading is only one of many influences and only impacts shares that have already seen large price drops. If you look at a 10-year chart of the TSX Venture Index, you’d be hard pressed to pick out late year moves based on tax loss selling. 

So far, this year, we’ve been on a weak uptrend since July. Those tend to last through tax loss season, or most of it, though we might see a small dip in December when the real procrastinators do their trades.