ETF Portfolio Updates: Bump Up Stop Losses to Protect Gains By: Christopher Mistal | February 19, 2015 | Email | Print

Welcome Year of the Sheep (or goat or ram depending on location). Although the Chinese New Year is not a major holiday for North America, it most definitely is for our friends and business associates in China, Hong Kong and elsewhere in the Asia and Chinatowns around the world. Celebrations will last up to a month in China impacting all aspects of life there. Business activity will take a hit and due to the fact that China is our second largest trading partner, some impact will likely reach our shores. But, let’s not fret too much because history suggests the “Year of the Sheep” will also be a good year for our markets.

In the above three tables, DJIA, S&P 500 and NASDAQ annual performance has been aligned with the Chinese zodiac calendar. Annual returns are based upon the Gregorian calendar. Nonetheless, the Year of the Sheep ranks well across all three indices. DJIA’s average performance is damaged by sizable losses in 1907 and 1931, but there has not been a losing “Sheep” year since 1931 and the six subsequent years have racked up an average gain of 16.6%. S&P 500, since 1930, has an identical record with an average gain of 21.8% excluding 1931. NASDAQ’s three “Sheep” years have all been positive and average a whopping 45%. 

Following nearly three months of sideways, essentially range bound trading; the market has broken out to new highs and is fighting to hold onto them. Aside from a few select holdings, our ETF portfolio had been similarly range bound. This no longer appears to be the case as the average open position gain has now climbed to 9.0% as of yesterday’s close. Just two short weeks ago, it was 6%. As a result of this surge higher, numerous stop losses have been raised in order to protect gains. See portfolio below for the latest.

Over the past two weeks, the market has presented opportunities to pick up this month’s Seasonal Sector Trades ideas at or better than their respective buy limits. PowerShares DB Gold Double Short (DZZ) was added to the portfolio on February 11 when it traded below $6.80 and ProShares UltraShort Silver (ZSL) was added two days later at $98.50. Historically, seasonal weakness in both gold and silver has begun in February and lasted until the end of June. This year weakness began in mid-January and gold and silver are currently not that far from their respective lows from last November. If gold or silver do break below their previous lows, substantial upside potential would exist for DZZ and ZSL, but until that occurs DZZ and ZSL are on Hold.

SPDR Utilities (XLU), this month’s new ETF Trades idea, was added to the portfolio on February 6, when it traded below its buy limit of $46.80. A moderate increase in Treasury bond yields over the past few weeks has put pressure on the interest-rate sensitive holdings of XLU, but a bottoming process appears to have begun. XLU appears to have found support just above its 200-day moving average and it’s Stochastic, relative strength and MACD indicators are showing early signs of turning the corner. XLU could still be considered on dips below $46.00.

In spite of all the volatility in the energy markets, our four energy-related ETFs, XLE, FCG, UNG and USO, are now showing an average return of 9%. Only UNG remains in the red with a now modest 1% loss. Further volatility is expected, but so are higher prices for all at least in the near term. Record cold in the Northeast is creating demand for natural gas and putting a strain on inventories while consumers seem to have memory issues and are once again purchasing or considering larger, less fuel efficient vehicles which will ultimately drive demand for crude oil. XLE, FCG, UNG and USO could all be considered on dips.