As of 01/27/2023
  Indus: 33,978 +28.67 +0.1%  
  Trans: 14,483 +191.14 +1.3%  
  Utils: 968 +1.08 +0.1%  
  Nasdaq: 11,622 +109.30 +0.9%  
  S&P 500: 4,071 +10.13 +0.2%  
YTD
 +2.5%  
 +8.1%  
 +0.0%  
 +11.0%  
 +6.0%  
  Targets    Overview: 01/13/2023  
  Up arrow34,900 or 33,150 by 02/01/2023
  Up arrow15,100 or 13,500 by 02/01/2023
  Up arrow1,040 or 950 by 02/01/2023
  Up arrow12,400 or 11,000 by 02/15/2023
  Up arrow4,100 or 3,800 by 02/01/2023
As of 01/27/2023
  Indus: 33,978 +28.67 +0.1%  
  Trans: 14,483 +191.14 +1.3%  
  Utils: 968 +1.08 +0.1%  
  Nasdaq: 11,622 +109.30 +0.9%  
  S&P 500: 4,071 +10.13 +0.2%  
YTD
 +2.5%  
 +8.1%  
 +0.0%  
 +11.0%  
 +6.0%  
  Targets    Overview: 01/13/2023  
  Up arrow34,900 or 33,150 by 02/01/2023
  Up arrow15,100 or 13,500 by 02/01/2023
  Up arrow1,040 or 950 by 02/01/2023
  Up arrow12,400 or 11,000 by 02/15/2023
  Up arrow4,100 or 3,800 by 02/01/2023

Bulkowski on Tax Loss Selling

Initial release on 12/2/2022.

Download the "Tax Loss selling.xls" Excel spreadsheet of data (72 k)
Overview
Methodology
Stocks
ETFs
Mutual Funds
Trading Example
See Also

Tax Loss Selling: Overview

In January 2022, the Dow industrials peaked for the year. It started a long slide down to the October lows. If you have capital losses in stocks (assuming you sold them), what's the best time to buy them back (at a lower price, if possible)?

The answer is obvious: You buy back the stock when it bottoms. But when is that? When do stocks, exchange traded funds, or mutual funds bottom in each of the last four months of the year?

The answer shows that stocks, exchange traded funds, and mutual funds all bottom at the start of each month.

Let's take a closer look.

Tax Loss Selling: Methodology

Each year, I start thinking about taxes in November. Do I have any securities that are below my purchase price, but I want to hold onto them for the long term? If the answer is yes, I may want to sell them for a loss and re-buy them to capture the tax loss and also lower my average cost. I want to re-buy them at a lower price. But when is that?

To find out, I programmed my computer to log the lowest price in each of the last four months of the year (September, October, November, December). For stocks, I used 455 of them. For exchanged traded funds, I used 103 of them, and for mutual funds, I selected 44. All of these securities I follow and were not chosen for any other reason to be included in this study. If you want to know how I selected the stocks, see this link. The period studied was January 1, 1990 to December 31, 2021. Not all stocks, ETFs, or mutual funds covered the entire period.

I pasted the data into a spreadsheet and graphed the percentage of time that securities bottomed on a common date. The thinking here is that I'm looking for a cluster of periods where a security frequently bottoms in each of the last four months of the year. For example, we know that September is the weakest performing month of the year (on average). September often is a terrific time to buy (because the market drops). December and January are good months to sell (because price peaks then).

When's the best time to re-buy a stock, ETF, or mutual fund?

Here are the results.

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Tax Loss Selling: Stocks

Tax loss selling for stocks

Above I show the chart which is from the spreadsheet. It shows point A with a peak at 10% on 1 September. That means 10% of the stocks I looked at posted the lowest low for the month on the first day of September. However, the surrounding totals remain high compared to other parts of September.

Peak B, which is October 1, also shows a hill surrounding the peak. It extends from 21 September to 10 October. If you sold a stock more than a month before, then hill B would be a good time to buy, on average.

Peaks C and D tie for the most stocks finding a low at the first of the month. Oddly, the first of the month seems to be a popular time for drops in stocks.

Based on this chart, near the end of each month to just after the start of each month is a good window of time to buy back stocks. For tax-loss selling, you'll want to have sold the stock at least a month before you try to re-buy the stock to avoid the wash sale rule. Check the tax code but as I write this you have to wait more than 30 days before re-buying the same stock. Please note that I didn't write a "month." I wrote 30 days. Some months have more or fewer than 30 days but you want to re-buy on day 31 or longer after you sold.

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Tax Loss Selling: ETFs

Tax loss selling for ETFs

This is a chart of 103 exchange traded funds (ETFs) bottoming on common dates from 1990 to 2021 (not all ETFs covered the entire range). It's similar to the prior chart with clusters around the first of the month (A, B, C, D). A fifth cluster occurs at E, which is around mid December (18 to 21).

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Tax Loss Selling: Mutual Funds

Tax loss selling for ETFs

This a chart of the results from 44 mutual funds I used to look for common dates where the funds make monthly lows.

Again, the four highest spikes corresponds to the start of each month. You'll find the most mutual funds making their monthly low then. There's a smaller cluster around E, December 16-19.

Although I used only 44 funds, there were 885 dates over the 31 years studied). The chart shows clusters similar to the other charts in this article.

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Tax Loss Selling: Trading Example

Tax loss selling for ETFs

This is based on an actual trade. I owned (and continue to own as I write this) IGV (iShares Expanded Tech-Software Sector ETF) after buying it a number of times, mostly at a higher price. I wanted to average down and capture the loss then re-buy it.

I sold most of my holdings (those for a loss) as shown on the chart, about four days before a minor high (on October 26). I received a fill of $260.95 per share.

More than 30 days later (on November 30, a day known to be weak according to this article), I re-bought the fund at the open and received a fill of $258.80.

The day after bought it back, it closed at $274.91, so on paper, I've made $16.11 per share in profit while capturing a loss for tax reasons.

-- Thomas Bulkowski

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See Also

 

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