NASDAQ’s Best Eight Months Update & Seasonal Sector Trades By: Jeffrey Hirsch & Christopher Mistal | June 07, 2016 | Email | Print

As of the market’s close today, both the faster and slower moving MACD indicators applied to NASDAQ are positive. The slower MACD indicator is pointed out with a blue arrow in the following chart. With NASDAQ’s modest loss today, a one-day decline of about 4.6% (about 228 points) would be needed to turn NASDAQ’s MACD Sell indicator negative. This is about two-thirds of what was required last week on Thursday as NASDAQ’s pace of gains has moderated. 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.

 

 

Although we do not officially track the Russell 2000 MACD Indicator for our seasonal switching strategy, it is also still positive (blue arrow in next chart). Since the May lows Russell 2000 has been the strongest performer, but it has run into projected monthly resistance (red dashed line). Before resistance, Russell 2000 did break out above its late April highs. Even if it continues higher through monthly resistance, Russell 2000 is likely to stall around 1200, its highs from last November/December.

 

 

 

Beef prices tend to form a seasonal high in March as packers have purchased inventory ahead of the summer grilling season. Then as grill masters supplement steaks and burgers with pork ribs, chicken and other delicacies, beef consumption starts to decline in the hot weather. But beef supplies also begin to dwindle as feed lots are short on inventory. 

 

Live Cattle prices typically hit a seasonal low in mid- to late June and then begin to rise before the school season begins as federal government subsidies for school lunch programs kick in for beef purchases. Consumption continues to increase through the winter and holiday season, generally keeping cattle futures prices higher through mid-February.

 

Our top longer-term seasonal play for live cattle is to go long the April 2017 contract near the usual June low on or about June 20 and hold it for 160 days until early. Over the past 46 years this trade has been positive 30 times for a success rate of 65.2%. Prior to the last two year, the previous four years were stellar. 2010 registered the largest gain in this trade’s 46-year history and those four years combined account for more than half the historic gains. Last year, this trade did not work as prices were retreating from multi-year highs.

 

 

The weekly chart below depicts the Live Cattle continuous futures contract with iPath Bloomberg Livestock Sub-TR ETN (COW) overlaid as a solid black line to illustrate how the two instruments trade nearly in tandem. Traders may want to look at futures and options strategies, but others may find COW an adequate trading vehicle.  In any event, beef is likely poised for its typical seasonal move up from an early summer low to a mid-winter peak.

 

 

COW is thinly traded averaging just about 6,000 shares per day on average over the past three months, but volume does pickup when Live Cattle (or lean hogs) begin to move. As of April 29, 2016, COW was 52.01% Live Cattle and 47.99% Lean Hogs. Caution should be taken with COW. This Exchange-Traded Note, like other unsecured debt securities with no principal protection, carries inherent risk, primarily issuer credit risk, and the risks with COW may be greater. PLEASE READ THE PROSPECTUS, CONSULT YOUR FINANCIAL ADVISOR AND CONDUCT YOUR OWN DUE DILIGENCE. COW could be considered on dips below $23.75. If purchased, a stop loss of $22.50 is suggested. This trade will be tracked in the Almanac Investor ETF Portfolio.

 

 

 

In addition to Live Cattle seasonal strength beginning in June, Cocoa, Wheat and Sugar also begin seasonably favorable periods in the month. Outside of the futures market, iPath Pure Beta Cocoa ETN (CHOC), Teucrium Wheat (WEAT) and iPath Bloomberg Sugar ETN (SGG) correlate well. However with the exception of WEAT, all have traded less than 40,000 shares per day on average over the past three months and holdings are generally meager presenting further liquidity concerns. PowerShares DB Agriculture (DBA) is a good alternative as it provides exposure to eleven different commodities: Feeder Cattle, Cocoa, Coffee, Corn, Cotton, Lean Hogs, Live Cattle, Soybeans, Sugar, Wheat and Kansas Wheat. DBA has assets of $862 million and trades better than 500,000 shares per day on average, offering plenty of liquidity relative to other choices. DBA could be considered on dips below $22.00. If purchased, a stop loss of $20.85 is suggested. This trade will also be tracked in the ETF Portoflio.

 

 

In response to last Friday’s jobs report, the U.S. dollar weakened briskly. A weaker dollar tends to support commodities and there is a spike on DBA’s chart that corresponds with the dollar’s drop on that day. DBA’s chart is bullish with Stochastic, relative strength and MACD indicators confirming strength. In addition, there is a golden cross (50-day moving average rising above 200- day moving average) in early May. If economic data holds up and the dollar weakens then further upside is likely.