Unlike the Dogs of the Dow, which is a strategy buying the 10 Dow stocks with the highest dividend yield at the beginning of the year, then dumping the "dogs" at the end of the year and selecting new ones, the "Free Lunch" trade is a very different strategy executed in mid December and shorter in duration. It attempts to take advantage of several year end phenomena such as index re-blalancing, tax selling, Santa Claus Rally, January effect, etc. and lasts until February.
According to MrTopStep:
Research has shown that NYSE stocks making new 52-week week lows in mid-December, primarily due to year end tax-loss selling, tend to outperform the NYSE through mid-February. These stocks are selected ahead of the Santa Claus Rally and approximately near the start of the January Effect.
Many of the stocks selected for the “Free Lunch” trade are down for good reason. Declining revenue and shrinking profits are most common amongst these names while others may have run into legal or accoun
