Stock Portfolio Updates: Rally Momentum Waning, Short Positions Remain on Hold
By: Christopher Mistal
August 18, 2016
With a little help from the release of the Fed’s minutes from its last meeting yesterday, the market was able to mount a rally that spilled over into today, producing modest gains on both days. The wishy-washy nature of the Fed has once again convinced enough people that any rate hike is most likely to be later, not sooner. Low rates for longer also put downward pressure on the U.S. dollar which in turn has given a boost to crude oil. Even with the ongoing support of the Fed, the market’s current rally appears to be losing some steam. A bit higher in August is still likely, but afterwards a modest pullback in September-October is not out of the question.
[DJIA Daily Bar Chart]
[S&P 500 Daily Bar Chart]
[NASDAQ Daily Bar Chart]
In the above three charts of DJIA, S&P 500 and NASDAQ signs of a slowing rally are growing. DJIA is sitting at about the same place it was a month ago in mid-July. S&P 500 is a handful of points higher and only NASDAQ has made any substantial move higher over the past four weeks. Stochastic and relative strength indicators are bouncing around just under overbought. MACD has been negative on DJIA and S&P 500 charts since the end of July while NASDAQ MACD has visibly turned negative over the past three days. All of this does not preclude additional gains, but it does suggest any gain is likely to be unimpressive. 
Portfolio Updates
In the four and a half weeks since last update, S&P 500 was up 0.7% and Russell 2000 gained 1.6% as of yesterday’s close. The Almanac Investor Stock Portfolio’s sizable cash position and short positions were a drag on performance. Overall, the entire Stock Portfolio slipped 3.6% lower over the same time period. Large-cap positions were the worst, down a disappointing 7.4% as long positions faltered and short positions went against it. Mid-Caps and Small-Caps also contributed to the overall decline, falling 3.2% and 2.8% respectively.
Due to recent overall market strength, short positions in Virtus Investment (VRTS), Vermilion Energy (VET), Cognex Corp (CGNX), Energen Corp (EGN) and Autodesk Inc (ADSK) have been stopped out. With the exception of Hi-Crush Partners (HCLP), all short trade ideas presented on July 12 have been traded. Those still in the portfolio are on Hold. The market, along with many of these short positions, has gone a long way in a relatively brief period of time which suggests a pause and/or possibly some sort of pullback is likely. Recent crude oil strength has also hindered many of the short positions as many were from the energy sector. There is still an excess of crude oil supply and demand will likely fade as the summer driving season begins to wind down after Labor Day. 
Looking back to last year’s basket of short stocks, the Almanac Investor Stock Portfolio was in a similar situation last August as it is this August; many of the short positions initially went against it. However, when the market did break down later in the month and remained weak through much of September the short positions paid off handsomely with solid returns by the mid-September 2015 update. In election years, August is usually a solid month, but much of the gains happen in the first half of the month. After this point the market frequently softens in September through October. It is during this time that the current short positions could begin to shine.
Refer to the updated portfolio table below for Current Advice about each specific position. Also note that several stop losses have been updated.
[Almanac Investor Stock Portfolio – August 17, 2016 Closes]
Disclosure Note: At press time, officers of the Hirsch Organization, or accounts they control did not hold any positions in the stocks mentioned, but may buy or sell at any time.