Stock Portfolio Updates: Summer Doldrums Come to an End
By: Christopher Mistal
September 13, 2016
It is official; the market’s summer doldrums came to an end last Friday with S&P 500 shedding 2.45%. That day also ended S&P 500’s streak of trading days without a +/- 1% move at 43. Some will point to the Fed, others economic data, the election or some combination of these possible reasons for the spike in volatility and the market’s declines. Regardless of the exact reason, the outcome is stacking up to be rather typical September market behavior.  
[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 the damage from Friday’s decline and today is visible. DJIA and S&P 500 are spending a third day below their respective 50-day moving averages and below projected monthly support (green dashed line). NASDAQ was in a slightly firmer position before the past three days and remains so today, but it is testing monthly support and its 50-day moving average. MACD, Stochastic and relative strength indicators applied to DJIA and S&P 500 have been deteriorating since the end of July, NASDAQ since mid-August. It remains to be seen if the current spike in volatility will manifest into something more significant or simply fade away. The fact that September has an infamous history of volatility should not be dismissed. 
Portfolio Updates
In the three and a half weeks since last update, S&P 500 was down 1.1% while Russell 2000 gained 0.7% as of yesterday’s close. The Almanac Investor Stock Portfolio’s sizable cash and short positions provided little buffer as numerous long positions weakened and several short positions strengthened. Overall the entire portfolio slipped 1.4%. Large-caps were the worst performing group off 5.7%. Small-caps declined 0.9% and Mid-Caps were flat, off 0.1%. However, today’s market weakness and crude oil decline is assisting our short positions.
August was a good month for small-cap stocks and that strength persisted into early September. Russell 2000 climbed 1.6% in August as DJIA and S&P 500 booked minor losses. As a result of this small-cap strength, three out of four small-cap short positions were stopped out. Pros Holdings (PRO), Hi-Crush Partners (HCLP) and Flotek Industries (FTK) have been closed out of the portfolio for losses. The single remaining small-cap short position, Lindsay Corporation (LNN) is on Hold.
Mid-caps were the least poor performing due to a modest improvement in two of its three existing short positions (MTDR and DRQ) even as its two long positions weakened. Short position gains were nearly enough to offset long position declines. All positions in the Mid-cap portfolio are on Hold.
The Large-cap segment of the portfolio suffered the most since last update. Tractor Supply (TSCO) was stopped out on September 8 when it closed below its stop loss of $79.03. TSCO was closed out at $70.13 (average price on the day) as it gapped lower on a sizable cut in earnings guidance. This was the second guidance cut this year and apparently TSCO is not immune to all of the woes of the broader retail sector. Las Vegas Sands (LVS) short position was also stopped out on September 1 following a report of solid revenue growth in July from Nevada casinos.
Continental Resources (CLR), a short position, is the worst performing of Large-cap positions as of yesterday’s close, but shares are down nearly twice as much as crude oil today. Looking at its chart, it is clear that CLR has gotten way ahead of itself since bottoming back in January/February at around $18 per share. CLR’s nearly 200% increase since then far exceeds the move in crude oil. CLR’s move may have been based upon the assumption that the crude oil glut would end soon, but the U.S. Energy Information Administration (EIA) now expects the glut to persist into 2017 which is likely to keep crude’s price in check. This is certainly not bullish news for the energy sector or CLR however; it could aid our bearish bets. 
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 – September 12, 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.