ETF Trades: Energy Gushing Ahead of Seasonal Strength
By: Christopher Mistal
December 01, 2016
Tomorrow’s jobs report will be the last before the Fed meets on December 13-14. The trajectory of the labor market has been reasonably solid with consistent monthly gains since around early 2011. The Fed is widely expected to raise the Fed funds rate this December and since the median estimate for the report is 200,000 net new jobs, it is highly likely to have little impact on the Fed’s decision. 
However, the market has generally responded favorably to the December jobs report. Over the last 15 years DJIA, S&P 500, NASDAQ, Russell 1000 & 2000 have all advanced 11 times on the day of the December jobs report. Average gains range from 0.46% for DJIA to 0.71% for Russell 2000. Since 2008, the worst decline was 0.38% by NASDAQ in 2012.
[Jobs Report Performance Table]
New Sector Seasonality for December
Oil companies typically come into favor in mid-December and remain so until late April through early July in the following year (yellow box in chart below). This trade has averaged 11.9%, 11.6%, and 7.5% gains over the last 15-, 10-, and 5-year periods, This seasonality is not based upon the commodity itself; rather it is based upon NYSE ARCA Oil & Gas index (XOI). This price-weighted index is composed of major companies that explore for and produce oil and gas. 
Crude oil’s plunge from over $100 per barrel in 2014 to the lows of earlier this year resulted in a similar dive of XOI. After years of fighting U.S. producers, OPEC appears to finally have come to an agreement to curtail production. As a result crude oil has surged this week and many company’s stocks are following suit. If OPEC can stick to the agreement and actually cut production, higher crude prices should lead to higher profits and stock prices.
[NYSE Arca Oil Index (XOI) Weekly Bars and Seasonal Pattern since 11/9/1984]
SPDR Energy (XLE) is the top pick to trade this seasonality. A new position in XLE could be established on pullbacks with a buy limit of $73.30. Employ a stop loss of $65.97. Take profits at the auto sell of $90.22. Exxon Mobil is the top holding in XLE at 16.55%. The remaining top five holdings of XLE are Chevron, Schlumberger, Pioneer Natural Resources and EOG Resources.
[SPDR Energy (XLE) Chart]
Portfolio Updates
Three sector seasonalities come to an end in December: Gold & Silver, Semiconductor, and Telecom. SPDR Gold (GLD) was stopped out on November 18 when it closed below 115.50. A stronger U.S. dollar, a highly likely Fed rate hike and a broad rotation out of defensive sectors were the primary reasons for gold’s retreat. 
iShares DJ US Telecom (IYZ) and iShares PHLX Semiconductor (SOXX) can be sold. IYZ had a modest 1% gain at yesterday’s close. SOXX was up 6.4% prior to today’s sharp selloff. IYZ and SOXX will be closed out using their respective average daily prices on December 2.
Since Election Day the odds of a December Fed hike have steadily increased as incoming data has held up and major indices broke out to new all-time highs. Defensive and/or interest rate sensitive sectors like Consumer Staples, Healthcare and Real Estate have slipped as a result. The selloff is likely overdone considering the Fed will most likely only move 0.25% and end up in a holding pattern again. As a result, XLP, XLV and VNQ can still be considered at current levels.
Technology shares have also been somewhat beaten up recently as money appears to be leaving this area of the market for other places like Financials and Transports. This is most likely a temporary condition and money will return. IYW, XLK and QQQ can also be considered at levels for new and/or additional purchases up to their respective buy limits.
Excluding previously mentioned positions, all others are on Hold for now. If the market follows the typical December pattern, there will likely be another buying opportunity around mid-month. Please see table below for Current Advice and note updated stop losses for many of the positions held. 
[Almanac Investor ETF Portfolio – November 30, 2016 Closes]
Disclosure Note: At press time, officers of the Hirsch Organization, or accounts they control held positions in FXB, GLD, IBB, IWM, IYT, QQQ, SPY, VNQ, XLB, XLF, XLP, XLV and XLY.