ETF Trades: New Life for Tech Shares
By: Christopher Mistal
March 01, 2016
Despite the market’s wild ride in February, DJIA closed out the month with a modest 0.3% gain. Were it not for losses on the last day, S&P 500 would have finished in the black as well, instead it finished the month off 0.4%. NASDAQ was the poorest performer of the month, down 1.2%. This February reverted back towards its mean, bucking the nascent trend of robust February gains following a down January
A down S&P 500 January followed by a down S&P 500 February has occurred 19 times going back to 1930 including this year. March’s performance following the previous 18 down January/down Februarys was above historical average, gaining 1.68% with 11 advances and 7 declines. April was even better, up 12 of 18 with an average gain of 1.95%. However, March through December and full-year performance in those years was less than stellar. March through December averaged a gain of 3.95% and the full-year averaged a loss of 3.63%. Five of these eighteen previous years were also election years (shaded in grey). Only 2000 and 2008 failed to post gains during the March to December time period as the tech and credit bubbles burst.
[S&P 500 Down January, Down February & Following Performance since 1930 Table]
April Sector Seasonality
Normally at this time we would be considering new long ideas from the Computer Technology sector as seasonal strength typically begins in April and runs until July. Historically, the Computer Technology has averaged 7.1%, 6.9%, and 4.4% over the last 15-, 10- and 5-year time periods respectively. Because our short-term outlook is looking for a rally to close out the “Best Months” and that is exactly what the market has been doing since mid-February, let’s consider a position in iShares US Technology (IYW). IYW could be considered on dips below $98.00 accompanied by strength in Stochastic, relative strength and MACD indicators. If purchased, employ a stop loss at $92.95.
[IYW Daily Bar Chart]
ETF Portfolio Updates
Slightly less than two weeks ago, with better than two months remaining in the Best Six Months for DJIA and S&P 500 and four months for NASDAQ and Russell 2000, we suggested establishing new positions in DIA, SPY, QQQ and IWM. These four positions were added to the ETF Portfolio on February 19. DIA’s opened below, traded the entire day and closed below it buy limit on the nineteenth as a dividend was paid. As a result, DIA “Presented Price” and the price it was added to the portfolio at are an average of its open and close on the day. IWM, QQQ and SPY were added using their respective buy limit prices.
In addition to IYW above, SPDR Technology (XLK) can also be considered on dips below its buy limit. To be clear, we are not as bullish as we were when we issued our Seasonal Buy Signal last October, but we do anticipate some strength to close out the “Best Months.” Although not listed in the ETF Portfolio, we do want to maintain a cash balance as our longer-term outlook is less than sanguine. We do not want to be fully invested at this time.
The poorest performing position in the portfolio, DB Gold Double Short (DZZ) is off 12.7% since being added. Gold has enjoyed a longer than usual run up this year mostly due to fear and the safe-haven trade, but gold's longer-term trend is still lower and seasonal factors are no longer on its side.
Other remaining positions have improved as the broader market has improved, but excluding today’s new trade idea, XLK and HDGE, all other positions are on Hold.
[Almanac Investor ETF Portfolio – February 29, 2016 Closes]
Disclosure Note: At press time, officers of the Hirsch Organization, or accounts they control held positions in QQQ and VNQ.