ETF Portfolio Update: Natural Gas Trades Added
By: Christopher Mistal
March 10, 2016
Earlier today the European Central Bank (ECB) took further action to foster inflation and spur growth in the Euro zone. The ECB cut its main interest rate to 0% and lowered the bank deposit rate to negative 0.4%. It also expanded its quantitative easing (QE) program by a sizable 33%, from €60 billion to €80 billion per month. As part of the expansion of the program, investment-grade corporate debt will now be eligible for purchase. The ECB expects its QE program will run until at least the end of March 2017.
The ECB’s actions and course are in line with numerous other central banks around the globe, except one major one. Our central bank, the Fed, is heading in the opposite direction with monetary policy and could, although expectations are low, raise interest rates again next week. The current tightening cycle is the sixth major cycle going back to 1973.
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[DJIA and Major Fed Rate Hike Cycles]
From our research, DJIA was generally positive ahead of the first hike and then weak afterwards. The above table is updated through yesterday’s close and it shows DJIA’s initial response to the first increase (“1 Month After column) was worse this time than during any of the previous five tightening cycles. The 3 Months Later mark arrives March 16 and assuming the market does not make a major move in either direction between now and then, DJIA’s performance will be on par with past cycles at that point. Looking ahead to 6-Months and 1-Year After, more weakness is suggested. The exact timing of which will highly depend upon the pace that the Fed ultimately takes while increasing rates.
ETF Portfolio Updates
Earlier this month in our ETF Trades Alert, we presented a new trade idea which was aimed at taking advantage of seasonal strength in Computer Tech that usually begins in April and runs through July. iShares US Technology (IYW) has not traded under its buy limit yet. As a result of recent strength, IYW’s buy limit is being bumped up to $100.00
This month’s Seasonal Sector Trades, connected to natural gas, have both been added to the ETF Portfolio. First Trust ISE-Revere Natural Gas (FCG) was added on March 8 at $4.30. FCG first closed above $4.22 on March 4, but did not trade under its buy limit until two trading days later. United States Natural Gas (UNG) was also added on the eighth. This was the day after its MACD indicator turned positive. UNG was added to the portfolio at $6.05, its opening price on March 8. FCG could still be considered at current prices with a buy limit of $4.30. UNG could also still be considered on dips below $6.25. New and/or updated stop losses for FCG and UNG appear in the table below.
Precious metals, gold and silver, have not succumbed to typical seasonal weakness yet this year. Gold and silver are likely responding to deflation fears and negative interest rates. DB Gold Double Short (DZZ) was stopped out on March 3, when it closed below $6.04. ProShares UltraShort Silver (ZSL) has not been stopped out and is on Hold.
[Almanac Investor ETF Portfolio – March 9, 2016 Closes]
Disclosure Note: At press time, officers of the Hirsch Organization, or accounts they control held positions in QQQ, USO and VNQ.