ETF Trades: Two New Longs & Defense Pays Off
By: Christopher Mistal
July 05, 2016
Last week’s rally had virtually erased all losses from the Brexit vote market rout. As of last Friday, DJIA had bounced back and was effectively following the historical seasonal pattern associated with incumbent party victories. This would suggest Hillary Clinton will be the next President. S&P 500 is back on track and following the typical all-election year pattern. NASDAQ continues to lag DJIA and S&P 500 and is still negative year-to-date. 
[DJIA 8th Year Seasonal Chart]
[S&P 500 8th Year Seasonal Chart]
[NASDAQ 8th Year Seasonal Chart]
New Trade Ideas for August Seasonalities
Biotechnology sector enters its historical favorable season in August. iShares NASDAQ Biotech (IBB) could be bought on dips below $242.50. The stop loss is $229.90 and auto sell is $350.24. A 16.0% average gain has occurred over the last 15 years while an average gain of 31.3% has taken place the most recent 5 years. Biotech had been hot in recent years and even though valuations are still arguably elevated, this is where growth can still be found. It is also quite likely that this sector will play a significant part in the next secular bull market. Unlike other areas of the market, IBB has not recovered fully from its January plunge. It has traded below $250 per share on several occasions over the past four months and each time it did it proved to be a good time to buy.
[iShares NASDAQ Biotech (IBB) Daily Bar Chart]
Over the last 15 years, High-Tech has generated an average return of 10.8%, and for the last five years the average has improved to 16.1% during its bullish season from mid-August to mid-January. Our top ETF within this sector is iShares DJ US Tech (IYW). A buy limit of $100.05 and stop loss of $94.95 are appropriate. If high-tech produces above average gains, profits will be taken at the auto sell of $127.77. Similar to the broader market, IYW has largely been in a holding pattern since the end of March. It was hit hard by the Brexit sell off and has bounced back. Technical indicators are improving, but we will look to take advantage of any future weakness.
ETF Portfolio Updates
Since doubling down on defensive positions in HDGE, TLT and AGG when we issued our official Seasonal MACD Sell for NASDAQ, the market has taken a turn for the worse. This has benefited these defensive positions. As of last Friday’s close, TLT was performing best, up 5.9%. AGG was up 1.5% while HDGE is still off 1.9%. HDGE’s performance can vary from anticipated as it is rather concentrated in a select basket of stocks. There have been, and will be, days when the market is down and HDGE is also down however, HDGE usually does perform well when there is a sizable market pullback.
Seasonal strength is oil stocks usually comes to an end in early July. Crude oil has a similar seasonal pattern and has been exhibiting weakness. As a result, Sell United States Oil (USO). For tracking purposes, it will be closed out of the portfolio using tomorrow’s average price.
Seasonal weakness in Banking and Natural Gas sectors also comes to an end in July. Cover the short positions in SPDR Financials (XLF) and First Trust ISE-Revere Natural Gas (FCG). FCG is down over 4% today and XLF is down nearly 2% which will improve the modest gains these short positions had last Friday. For tracking purposes, both will be closed out of the portfolio using their respective average price tomorrow.
Rising political uncertainty and the increasing number of countries with negative or near negative rates has boosted demand for gold. The run up in gold translated into a brisk move for gold mining stocks. Regrettably the buy limit for Market Vectors Gold Miners (GDX) was never reached and it has run away. Long GDX trade idea is cancelled
The surprising Brexit vote outcome brought havoc upon the NASDAQ Mid-Year Rally trade. The rally did begin on the third to last trading day of June, but at a much lower level than expected. PowerShares QQQ (QQQ) was added on the open on June 24 and was closed out the following trading session when it closed below its tight 1% trailing stop at $103.25.
With the exception of today’s new trade ideas and the positions that will be closed out, the rest of the portfolio is on Hold. See table below for updated stop losses.
[Almanac Investor ETF Portfolio – July 1, 2016 Closes]
Disclosure Note: At press time, officers of the Hirsch Organization, or accounts they control held a positions in AGG, HDGE and TLT.