ETF Trades: Ratchet Up Stops & Take Some Profits
By: Christopher Mistal
March 03, 2015
Next week, on March 10, this bull market will be starting its seventh year. It arrives at this milestone by avoiding a 20% (widely accepted threshold for a decline to be called a bear market) or greater decline which was narrowly avoided in 2011 when S&P 500 dropped 19.4% from its April closing high to its October closing low. So far DJIA has gained 179.3%, S&P 500 213.0% and NASDAQ a whopping 294.8% at their closing highs yesterday. In the tables below, you can see the current bull market has lasted longer and returned more than the historical averages across all three indices. However, there have been bull markets of longer duration and magnitude than now, just not that many.

[DJIA Bull & Bear Markets since 1900]
[S&P 500 Bull & Bear Markets since 1930]
[NASDAQ Bull & Bear Markets since 1971]

April Sector Seasonality

Normally at this time we would be considering new long ideas from the Computer Technology sector as seasonal strength in begins in April and runs until July. Historically, the Computer Technology has averaged 8.4%, 5.4%, and 5.9% over the last 15-, 10- and 5-year time periods respectively. However, this year the corresponding position in SPDR Technology (XLK) was not closed out in January. XLK could be considered on dips below $42.50 accompanied by improving Stochastic, relative strength and MACD indicators.

[XLK Daily Bar Chart]

ETF Portfolio Updates

Since last update less than two weeks ago, the Almanac Investor ETF Portfolio is unchanged overall. Major indices have broken out to new all-time highs and the NASDAQ closed above 5000 for the first time since 2000. This strength has translated into additional gains for the “core four” ETFs, SPDR DJIA (DIA), iShares Russell 2000 (IWM), PowerShares QQQ (QQQ) and SPDR S&P 500 (SPY) and other positions, but the energy sector softened over the same time period eroding the performance of SPDR Energy (XLE), First Trust ISE-Revere Natural Gas (FCG), United States Natural Gas (UNG) and United States Oil (USO). The net result is the average open position return remains the same 9.0%.

With ample time remaining within their respective seasonally favorable periods, XLE, FCG, UNG and USO can still be considered on dips below their buy limits. Inventory data has been the biggest drag on energy following its overdone price collapse last year into early this year. Both oil and natural gas inventories are more than ample here in the U.S. while demand has remained somewhat tepid. But, as we have all bore witness recently, retail gasoline price is on the move higher again in anticipation of the summer driving season, refinery maintenance and shutdowns. Higher prices for gasoline will likely also lead to higher prices for crude oil.

Natural gas inventories are healthy now, but it seems like winter just does not want to let up. Here in the Northeast we will be facing two more storms and sub-freezing temperatures over the course of the 10-day forecast. The longer winter drags on, the less time there will be for suppliers to build inventory ahead of the inevitable summer cooling season. Much of our electricity is produced from natural gas and when temperatures soar, electric demand soars as well.

Biotechnology seasonal strength ends in early March. Sell iShares NASDAQ Biotech (IBB). For tracking purposes, IBB will be closed out of the ETF Portfolio using today’s closing price. As an alternative to outright selling, an even tighter stop loss than 5% could also be implemented. An outright sale seems like the best idea as IBB has lost momentum and many of its individual holdings are also beginning to show signs of weakness.

Also sell Vanguard REIT (VNQ). After enjoying a brisk January rally with bonds, VNQ faltered in February and broke down through its 50-day moving average. Even though the Real Estate sector normally remains strong through the beginning of May, we will take VNQ’s nearly 10% gain (at yesterday’s close) now. For tracking purposes, VNQ will be closed out using today’s closing price. Here again, a tight 1-2% trailing stop is an alternative.

With the end of the “Best Six Months” quickly approaching all positions, except XLK, XLE, FCG, UNG and USO, are on hold. See table below for updated suggested stop losses. Most have been raised.

[Almanac Investor ETF Portfolio – March 2, 2015 Closes]

Disclosure Note: At press time, officers of the Hirsch Organization, or accounts they control held positions in IWM, IYT, QQQ, SPY, UNG, USO, XLF, XLI and XLV.