ETF Portfolio Updates: Defense takes the Field
By: Christopher Mistal
May 05, 2016
Since hitting a multi-month high on April 20, DJIA and S&P 500 have been steadily trending lower and May is living up to its past election-year performance with sub-par performance. First trading-day strength quickly faded with the market giving back that day’s gains and more on the second trading day. Even today’s early gains quickly vanished. After about two weeks of weakness DJIA and S&P 500 are now approaching key support levels.
[DJIA Daily Bar Chart]
[S&P 500 Daily Bar Chart]
[NASDAQ Daily Bar Chart]
At today’s lows, S&P 500 was a mere three points above its quickly ascending 50-day moving average. DJIA has a slightly better cushion of around 100 points. NASDAQ is in no-man’s land trading well below both its 50- and 200-day moving averages. Two weeks of weakness has Stochastic, relative strength and MACD indicators stretched toward oversold. An oversold bounce is not out of the question however, NASDAQ’s lagging performance is likely to limit the magnitude and duration of a bounce, further reducing the already slim odds of new all-time highs.
ETF Portfolio Updates
Over the past four weeks since last update, the market presented ample opportunity to add our defensive trade ideas to the ETF Portfolio at or below suggested buy limits. AdvisorShares Ranger Equity Bear (HDGE) was the first position added when it traded under its buy limit of $10.70 on April 13. HDGE traded as low as $10.03 in April, but has since rebounded. Additional purchases could be considered at current prices up to the buy limit.
iShares 20+ Year Treasury Bond (TLT) and iShares Core US Aggregate Bond (AGG) were also picked up last month. TLT was added on April 20 when it traded below $129.75 and AGG was added on April 26 when it traded under $110.35. Additional purchases could be considered on dips below their respective buy limits.
Three of last month’s short trade ideas have been executed. SPDR Financial (XLF) traded up to and modestly through resistance near mid-April before stalling out with the broader market. SPDR Materials (XLB) was also shorted but was quickly covered at $47.05 for a 1.5% loss during what turned out to be a false breakout. That breakout failed and XLB could be shorted again at current prices. iShares DJ Transports (IYT) has not yet traded at either of its possible entry points, but is nearing support. Should support around $137 break, IYT could be shorted.
U.S. dollar weakness triggered the end of our precious metal related trades. Direxion Daily Jr Gold Miners Bear 3X (JDST) and ProShares UltraShort Silver (ZSL) have both been stopped out for larger than acceptable losses. This is an example of leverage making the situation worse. Sizable moves in gold and silver triggered big moves in gold and silver stocks that were in turn amplified into even greater moves. ZSL plunged, but rebounded to allow sale at its stop loss price of $44.63. JDST plunged, and did not rebound, through and closed below its stop on April 11 and was closed out of the portfolio using the average price on April 12.
On May 2, First Trust ISE-Revere Natural Gas (FCG) reverse split, 1 for 5. Its original price and stop loss have been adjusted for the split and is on Hold. Please note stop losses for USO, XLU, IWM, QQQ and UNG have been raised
[Almanac Investor ETF Portfolio – May 4, 2016 Closes]
Disclosure Note: At press time, officers of the Hirsch Holdings, or accounts they control held positions in USO and XLU.