ETF Portfolio Update: Initial Defensive Positions Established
By: Christopher Mistal
May 23, 2017
Last Wednesday, May 17, the market was walloped with the worst day of the year thus far. Prior to that day, VIX (CBOE Volatility Index) was at historic lows trading at less than 10 for four straight days and actually closed below 10 on May 8 & 9. VIX then slowly inched higher and closed at 10.65 on May 16. Today, VIX closed at 10.68. VIX and the broader market are essentially right back where they were one week ago, but it took four trading days to (nearly) recover that single day’s loss. 
VIX’s 46.4% jump on May 17 could be the first sign that the seasonal low in volatility has already been reached this year. In the following chart, VIX weekly bars appear on top with its 1-year seasonal pattern appearing on the bottom. In a typical year, VIX typically finds a bottom sometime from mid-April to mid-July before briskly rebounding higher through frequently turbulent August and September (since 1950, September is the worst month for S&P 500 and August is second worst based upon average percent change) to a peak in early October. From then until the following April, during the “Best Six Months,” VIX is generally in decline as the market is climbing higher. If VIX has reached its seasonal low for 2017, then more days like last Wednesday could be on their way.
[VIX Weekly Bar & 1-Year Seasonal Pattern Chart]
ETF Portfolio Updates
In accordance with the actions detailed in our Seasonal MACD Sell Signal Alert emailed after the close on May 17, several positions have been closed out and several defensive positions have been added to the portfolio. SPDR DJIA (DIA), SPDR S&P 500 (SPY), Vanguard REIT (VNQ), iShares DJ Transports (IYT) and SPDR Consumer Discretionary (XLY) were all closed out using their respective average daily prices on May 18. The average gain across these five positions was 8.8% excluding any dividends or trading fees. 
ProShares UltraShort Silver (ZSL) and the short position in SPDR Gold (GLD) were exited using their average prices on May 19. ZSL and short GLD were exited for an average loss of 3.9%. A weakening U.S. dollar and a significant improvement in Stochastic, relative strength and MACD indicators applied to gold and silver prices were factors in reversing these positions. Long half-positions in iShares Silver (SLV) and GLD were established on May 18 when both traded below their buy limits. SLV and GLD longs are currently up an average 1.3%. GLD and SLV can still be considered on dips below their buy limits.
Other defensive positions for the “Worst Months,” iShares 20+ Year Bond (TLT), iShares Core US Aggregate Bond (AGG) and SPDR Utilities (XLU) have also been added to the portfolio. These are also half positions and they may be added to when we issue our Seasonal MACD Sell Signal for NASDAQ sometime on or after June 1. Our objective with the ETF portfolio at this time is to target a market neutral overall position. There are still long technology- and small-cap-related positions in the portfolio. Initial defensive positions are intended to offset the potential seasonal risks of continuing to hold long positions. TLT, AGG and XLU can all still be considered on dips below their buy limits.
Short positions in iShares DJ Transports (IYT) and SPDR Financials (XLF) have also been established. These trades are based upon historical sector weakness outlined on page 94 of the 2017 Almanac. Banks are frequently weak from the beginning of May until the beginning of July and transports can be weak from early May until mid-October. IYT and XLF short positions are on Hold.
All other positions not previously mentioned are on Hold. Please see updated ETF Portfolio table below for current suggested stop losses. 
[Almanac Investor ETF Portfolio – May 22, 2017 Closes]
Disclosure Note: At press time, officers of the Hirsch Organization, or accounts they control held positions in AGG, FXB, GLD, IWM, QQQ, SLV, TLT, XLE, XLP and XLY.