Portfolio Updates: Pulling Defense and Going on the Offensive By: Christopher Mistal | October 06, 2015 | Email | Print

As promised, today’s Alert is a continuation of yesterday’s Seasonal MACD Buy Signal. It is being delivered a little later than usual as all updates were done using today’s prices. Although the market did take a breather today, it is still on course to trace out and complete a “1-2-3” or “W” bottom formation pattern. The market also afforded us an opportunity to close out defensive positions in the Stock and ETF portfolios and add new long exposure at better prices than available yesterday in many cases.

 

As has been the case more often than not over the past 65 years, the market did stumble during this year’s “Worst Four/Six Months.” From our April 30 Seasonal MACD Sell Signal for DJIA and S&P 500 through yesterday’s Seasonal MACD Buy Signal, DJIA was down 6.0% and S&P 500 was off 4.7%. NASDAQ’s Seasonal MACD Sell Signal was on June 4 and it was off 5.5%. The naysayers will still call this year a fluke, but DJIA’s and S&P 500’s high year-to-date was in May while NASDAQ managed to eke out a slightly higher high in July. We call this year a resounding success for “Sell in May” and our Seasonal Switching Strategy.

 

Looking ahead to the rest of the year, seasonal patterns are aligning for a potentially robust yearend rally. There has not been a down DJIA pre-election year since 1939. Historically, a down August followed by a down September has preceded sizable Q4 gains. The fourth quarter is also the most bullish quarter of the year (page 102 of 2015 STA). Market sentiment is no longer excessively bullish while fundamentals are mixed just enough to support a Q4 rally as expectations for an improving economy in 2016 likely begin to gain traction. 

 

Market volatility, measured by CBOE VIX is still somewhat elevated suggesting a few more wild daily swings are more than just likely. Buy limits and stop losses in the Almanac Investor Stock and ETF Portfolios have been selected with the goal of using any volatility to our advantage while establishing new long positions on dips and avoiding the dreaded whip saw stop loss once purchased.

 

 

Per yesterday’s Alert, all remaining short trades where covered today. The most successful of these trades was Bluebird Bio (BLUE) with a gain of 36.8%. However Biotech’s and Healthcare’s recent weakness was felt on other parts of the portfolio. Repligen (RGEN) and Omnicell (OMCL) were both stopped out in late September.

 

Americo Inc (UHAL), another longer-term holding had a solid September trading above $400 on multiple occasions towards the end of the month. Per standard trading guidelines half the original position in UHAL was sold on September 23 when it traded above $395.62, double its original price.

 

With the closure of several long positions and all short positions there is a sizable cash balance in the Stock Portfolio now. We will look to put this cash to work in a basket of undervalued, relatively unknown stocks exhibiting the greatest potential for growth and gains on Thursday, October 8.

 

 

 

Per yesterday’s Alert, all defensive positions and the last remaining short trade were closed out of the portfolio today. Late September weakness allowed the addition of XRT, IYZ, XLV and XLB, but also resulted in iPath Bloomberg Livestock Sub-TR ETN (COW) and iShares NASDAQ Biotech (IBB) being stopped out. COW we will pass on for now however, IBB can be bought on dips below $300.00.

 

SPDR DJIA (DIA), SPDR S&P 500 (SPY), PowerShares QQQ (QQQ), and iShares Russell 2000 (IWM) also appear in the table below and can be purchased at current levels or below their respective buy limits, whichever is lower. All other positions can also be considered at current levels or below their respective buy limits. See table below for updated buy limits, stop losses and auto-sell prices.