ETF Portfolio Updates: Maintain Defensive Posture
By: Christopher Mistal
June 21, 2016
It has been one week and a day since we issued our MACD Seasonal Sell Signal for NASDAQ. Since then NASDAQ traded lower, higher and today it is essentially where it was on Monday June 13. In addition to NASDAQ’s Sell Signal, DJIA also triggered its fourth Down Friday/Down Monday (DF/DM) of the year on the thirteenth. Previous research and analysis has shown that from the high within seven calendar days of the DF/DM to the subsequent low over the next 90 calendar days, DJIA has declined an average 7.5% going back to 2000.
In the following chart, the 30 trading days before and 60 trading days after a DJIA DF/DM have been plotted alongside the 5 times there was no low after the subsequent high and the 27 times there was no lower low after Monday. The 30 trading days before and the five trading days after the most recent DF/DM are also displayed. This is the same chart that appeared in the May 16 blog post where it was noted, “If DJIA recovers the losses from the DF/DM within about 4-7 trading days, then the DF/DM quite likely was an interim bottom. However, if DJIA is at about the same level or lower then additional losses are more likely.
[DF/DM Chart 30 Trading Days Before & 60 After]
As of today, DJIA is in the window of 4-7 trading days since the completion of the DF/DM. DJIA is also only slightly higher than its June 13 close of 17732.48. This alone would seem to suggest that last week’s low could have been an interim bottom. However, we also noted in that May 16 post that technical and sentiment indicators should also be checked for confirmation.
[DJIA Daily Bar Chart]
In the above chart recent DJIA strength can be seen, but it also appears to be waning already. MACD is still negative, but Stochastic and relative strength indicators appear to have turned the corner and are gradually improving. Some additional strength would be needed to confirm that the worst is over following the most recent DF/DM. This may not occur until after the results of the Brexit vote on June 23. Considering recent strength, it would not be surprising if selling occurs regardless of the vote’s outcome. Traders have been buying the rumor and could quickly sell the fact.
ETF Portfolio Updates
In accordance with the June 13 NASDAQ MACD Seasonal Sell Signal, SPDR Technology (XLK), iShares Russell 2000 (IWM) and PowerShares QQQ (QQQ) have been sold and closed out of the portfolio using their average prices on June 14 for gains of 3.0%, 14.4% and 6.4% respectively.
We have also officially added to existing positions in iShares 20+ Year Treasury Bond (TLT), iShares Core US Aggregate Bond (AGG) and AdvisorShares Ranger Equity Bear (HDGE) using their average prices on June 14. As a result, the “Presented” or purchased price for these positions has been updated. Additional HDGE was purchased at a lower price than the original position while additional TLT and AGG were added at a higher price. HDGE, TLT and AGG can still be considered on dips below their buy limits.
Short positions in IYT, XLF, XLB and FCG are little changed as of yesterday’s close. XLF’s corresponding seasonal weakness in the Banking sector last until early July. Natural gas related stocks are usually weak until the end of July while Transportation and Material sector weakness lasts until October. All four of these short positions are on Hold.
Other new trade ideas from earlier this month, GDX, COW and DBA have not yet been executed. GDX, COW and DBA can still be considered on dips below their buy limits.
USO and XLU are also on Hold. See updated table below for the latest suggested buy limits and stop losses.
[Almanac Investor ETF Portfolio – June 20, 2016 Closes]
Disclosure Note: At press time, officers of the Hirsch Organization, or accounts they control held a position in AGG, HDGE and TLT.