Stock Portfolio Updates: Short Positions Begin Paying Off
By: Christopher Mistal
August 17, 2017
Right on seasonal cue we are once again witnessing a pickup in market volatility. Today alone the CBOE Volatility index (VIX) jumped over 30% to close over 15. After reaching historic lows as recently as late July, we could likely see larger than usual spikes in the coming weeks to months. Fresh struggles for the Trump Administration combined with heightened tensions on the geopolitical stage, and domestically, are throwing a wrench in all the goldilocks economic outlooks.
Based upon the following weekly bar chart of the VIX with its corresponding seasonal pattern displayed in the lower pane of the chart, market volatility is likely to continue to escalate at least until sometime in early October. Last year, Presidential Election uncertainties keep the VIX elevated well into November.
[CBOE Volatility Index (VIX) Weekly Bars and Seasonal Pattern since 1990 Chart]
Ever since issuing our Seasonal MACD Sell Signal for DJIA and S&P 500 in May and in June for NASDAQ we have been taking steps to prepare for a stretch of market volatility and market weakness in the Almanac Investor Stock and ETF Portfolios. We missed some market upside by exiting in May/June, but we are already beginning to see the benefits of taking defensive moves then. 
Many of our recently established short stock positions are performing well while gold, silver and bond related positions in the ETF portfolio are also performing as anticipated. We believe the portfolios remain well-positioned to weather market volatility and expect to maintain the current posture until our Seasonal MACD Buy Signal confirms when it is safe to be more aggressive sometime after October 1.
Stock Portfolio Updates
Over the past month since last update, S&P 500 climbed 1.0% higher while Russell 2000 slipped 2.9% as of yesterday’s close. The Almanac Investor Stock Portfolio’s blend of cash, long and short positions climbed 1.2% over the same time period excluding dividends and any trading costs. Our Large-Cap portfolio performed best, up 4.7% while Mid-Caps climbed 2.4%. Small-Caps edged 0.1% higher.
Four out of five long positions in the Small-Cap portfolio slipped modestly lower in tandem with Russell 2000 weakness. As illustrated on page 110 of the 50th Anniversary Stock Trader’s Almanac 2017, top chart, small-caps have historically lagged large cap-performance throughout the month of July and into August. This weakness usually briefly reverses around the Labor Day holiday, but is typically short-lived as end-of-Q3 portfolio restructuring triggers small-cap weakness once again.
Unlike last month, Rocky Mountain Chocolate Factory (RMCF) and our two small-cap shorts, PDF Solutions (PDFS) and Ascendis Pharma (ASND), pushed the small-cap portion of the portfolio higher. PDFS second quarter earnings report was the key driver in its decline as it missed both earnings and revenues estimates by relatively wide margins. All small-cap positions are on Hold.
Second best overall Mid-Cap performance was not completely devoid of pain. Two out of three long positions slipped modestly lower. Only Scotts Miracle-Gro (SMG) climbed higher. Furthermore, two short trades, Impax Laboratories (IPXL) and Spark Therapeutics (ONCE) traded up to resistance, were added to the portfolio and continued to climb higher. IPXL and ONCE were both stopped out for 9% losses. Other Mid-Cap short positions fared much better. Blueprint Med (BPMC) now has a 16.2% gain and Ironwood Pharma (IRWD) is showing a 24.5% profit. BEL, HALO and MLNX are also in the green. The lone losing open mid-cap position is Foundation Med (FMI). All mid-cap positions are on Hold.
Large-caps continue to dominate. UnitedHealth (UNH), Southern Copper (SCCO) and Arista Networks (ANET) all continued to move higher over the past month. Even The Hershey Company (HSY) climbed modestly higher, although it is still down from its original purchase price. UNH, SCCO, ANET and HSY are all on Hold. Due to recent gains, stop losses for UNH, SCCO and ANET have also been raised.
Our four large-cap short trade ideas are mixed, two are up and two are down. Mattel Inc (MAT) and Mosaic (MOS) are working well, both showing double digit gains. Sealed Air Corp (SEE) and Tesla Inc (TSLA) are both modest losers. SEE has been stuck in a trading range between approximately $42 and $50 for over a year so its downside could be limited unless it breaks down through $42 on heavy volume. SEE’s upside appears limited by valuation and declining annual revenues.
The TSLA short trade had been working rather well until its Q2 report was released. Top and bottom line numbers were better than expected although the company still burned through $1.16 billion in cash in the quarter. TSLA could bounce higher, but it appears at least some of the momentum that propelled the stock to nearly $400 per share earlier in the year is gone. The company is going to be facing some stiff competition in the very near future and not just from other auto makers, but also in the battery market. TSLA short trade is on Hold
All other positions, not mentioned above, are currently on Hold. Please refer to the updated portfolio table below for Current Advice about each specific position. Please note that many stop losses have been updated.
[Almanac Investor Stock Portfolio – August 16, 2017 Closes]
Disclosure Note: At press time, officers of the Hirsch Organization, or accounts they control held positions in, ANET, BUSE, CCS, HSY, MHO, RMCF and SMG.