ETF Trades: Energy’s Bounce Likely Over
By: Christopher Mistal
August 03, 2017
Oil’s historically weak seasonality begins in the beginning of September, usually lasts until the end of November and is based upon the AMEX Oil index (XOI). The average price decline of XOI during this period over the last 15 years has been 4.7%. This trade appears to be setting up well this year although a little earlier than usual. First, MACD, stochastic and relative strength indicators applied to XOI are all on the verge of turning negative. Second, crude oils bounce off its mid-June low appears extended and on the verge of stalling. And third, inventories are still plentiful.
Aggressive traders may consider Direxion Energy Bear 3x (ERY) or ProShares UltraShort Oil & Gas (DUG) to take advantage of the sectors historically weak period however, both of these funds are leveraged and volatility is magnified. An outright short position in SPDR Energy (XLE) is the path we will take in the Almanac Investor ETF Portfolio. XLE has been trending lower since last December. Like crude oil, XLE has also enjoyed a modest bounce, but it’s stochastic, relative strength and MACD indicators are all turning negative, confirming the bounce is likely over. XLE could be shorted near resistance around $68.07 or on a breakdown through support around $64.23. A stop loss around $69.40 is suggested and profits can be taken if XLE falls below $55.
[SPDR Energy (XLE) Daily Bar Chart]
ETF Portfolio Updates
Although DJIA, S&P 500, NASDAQ and Russell 2000 have climbed to new all-time highs, they have only been marginally higher than their respective previous highs. A few percentage points of potential gains have been left on the table by our Tactical Seasonal Switching Strategy, our defensive positions have been holding up well. XLP, XLV, TLT, XLU, AGG and GLD all have slight to modest gains at yesterday’s close. iShares Silver (SLV)  has been improving lately and the loss on this position has shrunk to 2.5%. All seven of these “Worst Months” defensive positions are on Hold.
Now that the worst two consecutive month span (August to September) has arrived it would not be surprising to see the market take a breather or even pullback. Should the market pullback, then the defensive positions will likely perform their jobs even better than they have during the recent move higher.
Short trades in SPDR Materials (XLB), iShares DJ Transports (IYT), SPDR Financials (XLF) and First Trust Natural Gas (FCG) are currently underwater. The biggest loss is owned by XLF, off 7.2% since being presented.  XLB, IYT, XLF and FCG are all on Hold.
Last month’s new ETF Trade ideas, in biotech and high-tech (IBB & IYW) have not yet traded below their respective buy limits. The buy limits are intentionally well below current levels as we would like to pick them up during any bout of weakness that could occur sometime during the next two months. IBB and IYW are only fractionally higher than one month ago so we have not missed any major break out higher. IBB and IYW can still be considered on dips below their buy limits.
The second half of July S&P 500 short trade using ProShares UltraShort S&P 500 (SDS) was never executed as SPDR S&P 500 (SPY) did not fall below our trigger price. The SDS trade is now cancelled.
All other positions not mentioned above are currently on Hold. Please see table below for current advice and stop losses.
[Almanac Investor ETF Portfolio – August 2, 2017 Closes]
Disclosure Note: At press time, officers of the Hirsch Organization, or accounts they control held  positions in AGG, COW, DBA, GLD, SLV, TLT, XLP and XLV.