ETF Trades: Seasonal MACD Buy Signal Update By: Christopher Mistal | October 04, 2016 | Email | Print

With just two trading days in the record books, the fourth quarter of 2016 is off to a bumpy start. As of today’s close S&P 500 is down 0.82% and appears to be casting its vote early, against the incumbent party’s candidate Hillary Clinton. Perhaps it is voting for Republican candidate Donald Trump or maybe for Gary Johnson of the Libertarian party. Admittedly it is too early in October to make such a call however; it is notable that S&P 500 has already deviated from its typical path in October compared to past incumbent party victories. 

 

 

In the above chart, S&P 500 performance in October is plotted for “All Years,” “Election Years,” “Incumbent Victories,” “Incumbent Party Defeats” and “2016.” Should S&P 500 continue to track the Incumbent Party Defeat pattern, weakness is likely to persist until near the end of October before a modest rally ensues, but still fails to return to positive territory.

 

This presidential election has been unique and an unusual response from the market is not out of the question. Recent weakness likely has more to do with the IMF lowering its growth forecast for the U.S. and an increasingly hawkish tone from the Fed. Brexit fears are also weighing with the British pound trading at its lowest level in decades today. These are all legitimate concerns, but nothing exactly new. The Fed has been a pendulum swinging between yes and no since the start of the year and U.S. (and global) growth has been tepid for years now while an actual Brexit is still unsorted. Friday’s jobs report and earnings season just around the corner will either confirm concerns and fears or alleviate them.

 

 

Our Seasonal MACD Buy signal can trigger anytime now. Presently, the MACD Buy indicator (MACD (C,8,17,F)) in the following chart of NASDAQ is negative. DJIA and S&P 500 MACD indicators are trending toward negative as a result of recent weakness. One-day declines of 53 DJIA points and 0.54 S&P 500 points would turn their respective MACD indicators negative while NASDAQ needs a one-day gain in excess of 25.34 points to be positive.

 

 

Due to these mixed signals we are going to wait until when MACD indicators for DJIA, S&P 500 and NASDAQ are all positive before issuing our Seasonal MACD Buy Alert. Until that time we will continue to maintain a modestly defensive posture in our ETF and Stock portfolios.

 

 

Seasonal strength in Utilities typically comes to an end in early October. As a result of this, Sell SPDR Utilities (XLU). For tracking purposes, XLU will be closed out using its average price on October 5.

 

Defensive positions in TLT, HDGE and AGG are on hold. Continue to hold these positions until the “Best Six/Eight Months” officially begin when we issue our Seasonal MACD Buy Signal Alert.

 

Numerous positions in the portfolio remain open with buy limits that are below current market levels. In some cases, well below. IYW, IBB, IYT, IYZ, SOXX, XLY, XLP, XLV,XLB, XLK and VNQ can all be considered on dips below their respective buy limits. Any positions not added before our Seasonal MACD Buy Signal will be considered when we issue the Seasonal Buy.

 

iShares DJ Transports (IYT) short position was stopped out on September 30, when it closed above $145.

 

SPDR DJIA (DIA), iShares Russell 2000 (IWM), PowerShares QQQ (QQQ) and SPDR S&P 500 (SPY) all appear in the portfolio as “New” with corresponding buy limits that are well below current prices, but just above their respective support levels. If these positions dip below their respective buy limits, a half position is suggested. A full position would then be established when we issue our Seasonal Buy.

 

Overall election-year October performance has a hit or miss record. October is generally much better when the incumbent party ultimately wins in November and worse when it loses. Recent polls continue to indicate a tight race that could, with a catalyst, easily go either way. This uncertainty creates volatility and opportunity. Regardless of the election outcome, the market generally rallies to finish out the year as the uncertainty over who will take up residence in the White House is resolved.