ETF Trades: Precious Metals Miners & Natural Gas Stocks
By: Christopher Mistal
June 02, 2016
With the first five months of 2016 officially in the record books we have updated our 1-Year Seasonal Pattern Charts of Eighth Years, Election Years and 2016 year-to-date below. DJIA’s chart also includes Incumbent Party Wins and Losses and years when No Sitting President was running. The key takeaways from these charts are the market generally performs better when the incumbent  party wins and there have only been two losses in the last seven months of election years since 1952. This second point is not as easy to see as steep losses in 2008 have a sizable impact on the charts. Nonetheless, the market does frequently make a bottom in May and rally to finish the election year.
[DJIA Seasonal Chart]
[S&P 500 Seasonal Chart]
[NASDAQ Seasonal Chart]
NASDAQ’s Best Eight Months Update
Although the “Best Six Months” for DJIA and S&P 500 have officially come to an end, NASDAQ’s “Best Eight Months” (November through June) is still in progress. As of the market’s close yesterday, both the faster and slower moving MACD indicators applied to NASDAQ were positive. With NASDAQ’s modest gain today, a one-day decline of over 6.6% (about 330 points) would be needed to turn NASDAQ’s MACD Sell indicator negative. When NASDAQ’s MACD Sell indicator becomes negative, we will issue our NASDAQ Seasonal MACD Sell signal and begin clearing out remaining technology and small-cap positions held in the Almanac Investor ETF Portfolio.
[NASDAQ Daily Bar Chart]
June/July Sector Seasonalities
June and July tend to offer only a few high-probability seasonal trading opportunities in typical years. As a result, there are just three seasonal sector setups in the Stock Trader’s Almanac 2016 for June and July. The first takes advantage of seasonal weakness by natural gas stocks beginning in mid-June through the end of July. This trade is based upon the NYSE ARCA Natural Gas index (XNG). Unlike last year, XNG has been in an uptrend since its double bottom in January and February and is setting up nicely for a possible short trade.
First Trust ISE-Revere Natural Gas (FCG), a current long holding in the ETF Portfolio has also enjoyed a solid move higher over the same time period. However, the rally appears to be losing some steam as FCG has run into resistance at its still falling 200-day moving average. Before going short we will first need to close out the existing long FCG position. Sell FCG long position. For tracking purposes it will be closed out of the portfolio using its average price on June 3. FCG could be shorted near resistance around $25.05 or on a breakdown below $22.35 with corresponding negative MACD, Stochastic and relative strength indications. If shorted, set an initial stop at $25.95.
[First Trust ISE-Revere Natural Gas (FCG) Daily Bar Chart]
The next two seasonalities actually begin in July. Based upon the Dow Jones Transportation index, the transports are seasonally weak from mid-July through mid-October. Last month, we shorted iShares Transports (IYT) and thus far, this trade has been unrewarding. Continue to Hold the short IYT position.
July’s last seasonal opportunity is based upon the PHLX Gold/Silver index. Over the past fifteen years this index has produced an average gain of 11.8% from its end of July lows to its late December highs. The index is comprised of 30 precious metal mining company stocks. Obviously, moves higher by physical gold and silver would benefit the companies that mine the metals, but the stocks can also rise in anticipation of higher precious metals prices and during periods of uncertainty. Market Vector Gold Miners (GDX) is the ETF of choice for this trade. It has more than $7 billion in assets and has traded more than 80 million shares on average over the past three months. Because seasonal strength does not typically begin until late-July, we will be patient and look to add GDX to the ETF Portfolio on dips below $20.96. If purchased set an initial stop loss at $18.86 and take profits at the auto-sell price of $24.27.
[Market Vector Gold Miners (GDX) Daily Bar Chart]
ETF Portfolio Updates
In preparation for the end of NASDAQ’s “Best Eight Months,” stop losses have been raised significantly for XLK, IWM and QQQ. See table below for exact values. When we issue our NASDAQ Seasonal Sell signal, we will close these positions out of the portfolio.
In addition to FCG we will also closeout the position in United States Natural Gas (UNG) as seasonal strength in natural gas typically comes to an end in early June. Sell UNG. For tracking purposes UNG will be closed out of the portfolio using its average price on June 3.
Defensive positions, HDGE, TLT and AGG can be considered near current levels or on dips. When we issue NASDAQ’s Seasonal Sell signal we will reevaluate these positions and possibly officially increase the size of these positions.
Recent short trade ideas, IYT, XLF and XLB are all modestly in the red as of yesterday’s close. IYT and XLB were both shorted on May 6. Continue to Hold IYT, XLF and XLB.
As the possibility of a June or July rate increase increased, the U.S. dollar strengthened and precious metals weakened. ProShares UltraShort Silver (ZSL) was added to the portfolio on May 11 when it traded below its buy limit. ZSL has also closed above the threshold to switch to a 5% trailing stop loss. As a reminder, ZSL stop loss calculation is based upon its daily closing price. Its stop loss, as of yesterday’s high close appears in the table below.
[Almanac Investor ETF Portfolio – June 1, 2016 Closes]
Disclosure Note: At press time, officers of the Hirsch Organization, or accounts they control held a position in AGG, HDGE, QQQ and TLT.