Time for small traders to make some money

There aren’t many times of the year in which the average small investor can make some hopefully easy money at the expense of the big institutional investors.

We are going through one at the moment as the institutions try to reduce their tax bills and wash out some huge capital gains and capital losses, leaving some opportunities for nimble traders who don’t mind straddling the financial year.

Many institutions start doing tax loss selling or window dressing in May to avoid getting caught holding too many shares to sell in the rush during June but the selling is still likely to continue well into June anyway.

By taking a loss and exiting a disappointing stock, the institution can use that loss to offset other gains made on runaway shares such as Commonwealth Bank (ASX: CBA) and balancing gains with losses.

Two strategies to profit from

Broadly there are two main strategies that small investors can use.

Firstly, they can buy some shares in one of the year’s most successful companies at a time when that share price might be weaker than it has been for some time and secondly by taking advantage of the lower prices being offered for some of the year’s more disappointing stocks that may be ready for a turnaround as they are sold off.

Given that the benchmark ASX 200 index is up about 8% for the financial year, there’s an extra incentive and opportunity to cash in some profits and offset those gains with any available tax losses.

This looks like being a particularly fruitful year for so-called tax loss selling with no shortage of disappointing stocks counterbalanced by the many that have improved.

Virtually every lithium company you look at is a potential tax loss sale, including Mineral Resources (ASX: MIN), Liontown Resources (ASX: LTR) and Pilbara Minerals (ASX: PLS) at the larger end.

Then there are some of the fallen darling stocks such as Domino’s Pizza (ASX: DMP), IDP Education (ASX: IEL), Treasury Wine Estates (ASX: TWE) and the beleaguered Sky City Entertainment (ASX: SKC).

Big trading volumes for winners and losers

Stockbrokers have noticed that large volumes of Domino’s Pizza shares have been trading at the moment, indicating that the tax loss selling has already been gathering pace.

Domino’s shares have fallen more than 34% this financial year with the latest rash of selling also sending the price lower.

It could be an opportunity for those who believe that the fast-food vendor may be heading for recovery as it shrinks its global footprint and exits its less profitable stores.

With no further bad news being announced to the market, it appears that tax loss selling is solely to blame and once tax loss selling is out of the way the shares could start to improve again.

Lithium producers chopped in half

Similarly, the share prices of the lithium producers such as Pilbara, MinRes and Liontown Resources have basically halved over the last year and for those who think the worst may be over for the lithium producers, now could be a good time to strike.

However, weakness in the lithium price amid fears of a supply glut has not been encouraging of late.

Other spikes in the volume of shares traded have been seen in listed international education services company IDP Education, deepening the 37% price slump this year as the sector reacted to stricter immigration and visa policies.

Penfolds parent Treasury Wine recently hit a nine-year low on the back of suspected tax loss selling shares in troubled trans-Tasman casino operator Sky City have also been thumped on high volumes.

These are just a few examples and by looking out for falling prices on high volumes, this is a time of year when there could be some bargains to be had as some of the share market’s biggest winners and biggest losers hopefully go on sale at the same time.