ETF Trades & Seasonal MACD Update: On Hold for Now By: Christopher Mistal | April 04, 2017 | Email | Print

At the start of March we updated the S&P 500 Performance during the First 100 Days of new administrations since 1953 in a post titled “February Weakness Avoided, March’s Thunder Stolen?” Looking at the same chart updated through today’s close, March was indeed a dud. Instead of a respectable rally, S&P 500 fell 0.04% in March. As of today’s close it has been 75 calendar days since President Trump took office and S&P 500 has gained 3.9% which is still above historical average. Historically, March was a flat month for new Republican administrations (solid red line in chart below), but that weakness ended on average in early April and the S&P 500 rallied nearly 4% by the end of the month (black arrow). A similar result this year would put S&P 500 off this chart by the end of the month.

 

 

 

As of the close yesterday, both the faster moving MACD “Buy” and slower moving MACD “Sell” indicators (at bottom of following charts) applied to DJIA and S&P 500 were negative, but were trending toward reversing the sell signal that has been on the charts since early March. 

 

 

Continue to hold long positions associated with DJIA’s and S&P 500’s “Best Six Months.” We will continue to monitor the fundamental and technical outlook and issue our Seasonal MACD Sell signal when corresponding MACD Sell indicators applied to DJIA and S&P 500 both crossover and issue a new sell again.

 

 

Three sectors begin seasonally weak periods in May: Banking, Gold & Silver (stocks) and Materials. Over the past 15 years, all three sectors have declined on average 6.3 to 7.5% which sets them up as a reasonably good short trade candidates during the spring and early summer months. Although not published in the Stock Trader’s Almanac 2017 on page 94, Transports also exhibit seasonal weakness from early May through late June with an average loss of 5.5% over the past 15 years.

 

Typically we like to take advantage of sector weakness through the use of inverse or bearish ETFs. By doing so, the trade is similar to any other long trade that we choose to execute. One of the drawbacks of inverse ETFs is they frequently employ leverage and only track the daily performance of the underlying benchmark. As holding periods get longer, these types of funds often exhibit performance that differs significantly from the underlying security or index’s performance due to compounding and tracking errors. Three out of today’s four new trade ideas are going to be short trades. An “(S)” follows each ETF name in the portfolio table to denote it is a short trade. Only in the case of Gold & Silver will we use a leveraged inverse fund as its seasonally weak period is only about six weeks long.

 

Because there are already corresponding long positions in transports and materials sectors already in the portfolio, we will look to short these two sectors at resistance or when we issue our Seasonal MACD Sell Signal Alert. If a short trade in materials or transports hits its execution price before our Seasonal MACD Sell Signal, the corresponding long position could be sold and the short position implemented.

 

 

SPDR Financial (XLF) could be shorted just above resistance at $25.25. After gapping higher to start March, XLF has been under pressure since. It has slipped below its 50-day moving average and Stochastic, relative strength and MACD are all weak. However, Q1 earnings reports do have the potential to trigger a bounce higher. If shorted, set an initial stop loss at $27.78. Rising interest rates and a steepening yield curve were expected to lift banks’ profits, but the Fed appears to be on a prolonged and steady tightening cycle that is actually starting to flatten the yield curve as growth and inflation expectations are keeping the long end of the Treasury yield curve well anchored.

 

 

iShares DJ Transports (IYT) could be shorted on a rally toward resistance around $173.45. Stochastic, MACD and relative strength are currently mixed. Relative strength is neutral; Stochastics were improving, but have since triggered sell while MACD is slightly positive. IYT could easily bounce or just fall apart. Crude oil’s price could provide an early indication of which way it may be. The initial stop loss is $190.80. Tepid U.S. and global growth is still an issue the sector must overcome.

 

 

Direxion Daily Jr Gold Miners Bear 3X (JDST) can be bought on dips below $12.00. JDST is volatile due to its 3x leverage and frequently trades in a wide daily range. If purchased set an initial stop loss at $10.50. Consider taking profits on any jump above $15.00.

 

 

SPDR Materials (XLB) could be shorted on a rally back toward resistance near $53.45. XLB had enjoyed a solid rally from Election Day until early March. Since then, it has been sideways and it’s Stochastic, MACD and relative strength indicators are mixed. Stochastic indicator is on sell, relative strength is showing a modest improvement and MACD is also signaling a buy. Depending upon where the broad market goes next and where growth expectations go, XLB could creep higher or breakdown and test its 200-day moving average. A stop loss at $58.80 is suggested.

 

 

When compared to January and February, March was a challenging month for many sectors and major indices. DJIA, S&P 500 and Russell 2000 all finished March with mild losses while NASDAQ advanced 1.5%. This pattern is prevalent throughout the ETF Portfolio. Technology-related positions such as IYW, XLK and QQQ enjoyed modest gains while most other positions held suffered mild declines.

 

During March, weakness across precious metals, base metals and energy had mixed results on the portfolio. Silver price declines were sufficient to lift ProShares UltraShort Silver (ZSL) above its auto-sell price of $33.00 on March 9. ZSL was sold then for a quick 10% gain. DB Gold Double Short (DZZ) did rally early month, but gold’s decline was modest and DZZ did not reach its auto-sell and has since retreated and has a modest 0.7% loss. DZZ can be sold on any rally back above $6.00. Weakness in copper in March translated into a pullback by copper miners and Global X Copper Miners (COPX) was stopped out on March 7 when it closed below its stop of $22.63. COPX was closed out of the portfolio using its average trading price on the next day.

 

April is generally a top performing month of the year. It has been up 11 straight years in a row and its performance remains solid in post-election years. It is the first month of a quarter and it also hosts the first earnings announcements for the New Year. But, it is also the last month of the “Best Six Months” for DJIA and S&P 500. With this in mind, we maintain a long bias in the ETF Portfolio with a mindful eye on fundamentals and technical indicators for sign of weakness. When we issue our Seasonal MACD Sell Signal Alert, we will reduce long exposure and look to execute the best setup short-trade ideas at that time. Until then, all long positions remain on hold. Please see table below for updated stop losses and current advice.