Seasonal MACD and Portfolio Updates By: Jeffrey A. Hirsch & Christopher Mistal | October 19, 2017 | Email | Print

As of today’s close, our Seasonal MACD Buy Signal is still on Hold. Our 8-17-9 MACD “Buy” indicator applied to S&P 500 and NASDAQ turned positive on September 29. DJIA’s MACD “Buy” indicator turned positive on October 2. S&P 500 and NASDAQ MACD indicators are now negative. DJIA’s MACD indicator remains positive. 

 

The criteria to issue our Seasonal MACD Buy Signal is a new buy signal using our 8-17-9 MACD indicator on or after the first trading day of October and DJIA, S&P 500 and NASDAQ must be in agreement.

 

This criterion has not been met yet. A one-day DJIA decline of 185.46 point (-0.8%) or a few days of sideways to lower trading would turn its MACD indicator negative as well.

 

 

 

Our Stock Trader’s Almanac charter is based on time-tested, repeatable, historical trends and patterns for frequency and magnitude. While we realize that history never repeats exactly it sure does rhyme quite a bit. On this infamous 30th Anniversary of the Black Monday’s October 19, 1987 crash that drove DJIA down -22.6% in the largest one-day drop in history, let’s compare then to now…. Things were quite a bit different back then than they are today.

 

Number one, 30 years ago back in 1987 the market was up a great deal more. DJIA was up 43.6% and S&P 500 was up 39.1% when it had peaked two months earlier on August 25, 1987. NASDAQ was up 30.3% at its August peak. By the time October came around in ’87, DJIA was already down -17.5% from its peak to the Friday before Black Monday, S&P -16.1% and NASDAQ -10.7%.

 

Currently we’ve been logging new highs like it’s going out of style. But DJIA and S&P are up less than half as much as they were at the peak in August 1987. As of the close yesterday, October 18, 2017, DJIA was up +17.2% year-to-date, S&P +14.4%. NASDAQ is closer to where it was in 1987 at +23.1%. The market has barely had a pull back this year. The difference is rather evident in the chart below.

 

 

The battle for Catalonian independence from Spain rattled markets overnight and this morning on Wall Street, but the market action does not appear to be of the crash or meltdown ilk at this juncture. Back in ‘87 Black Monday, DJIA was down 8.9% at the open, up 6.5% from 9:30am to 10am, then to new intraday lows at 11am, followed by one last attempt higher up 4.1% from 11-11:30am, and then it tumbled the rest of the day. Today the market dropped a paltry 1% or so depending on the index this morning, but gained most of it back by midday.

 

Aside from it being October in a “7th year” (which does have a notorious history of October massacres), 1987 and 2017 have more differences than similarities. 1987 was a Pre-Election year and the 7th year of Reagan’s Term. 2017 is the first year of the Trump administration, and a post-Election Year. Our positive January Indicator Trifecta has provided sound bullish guidance all year. Yes we have been cautious as we always are in the “Worst Six Months,” May-October, while the market has continued to log gains, but our strategy has worked well over the long haul and in recent years, and we have remained long many winning positions in both our stock and ETF portfolios.

 

From the 1974 low to the ‘87 high DJIA was up 371.3%. Since the 2009 low DJIA is now up 253.7%. NASDAQ was up 730% then versus 422% now. 10-year Treasuries were in the 8-9% range back then in 1987 and now they’re at 2.30% and have been low for a decade.

 

In 1987 hawkish Fed Chair Volker had just stepped down. Greenspan replaced him shortly before the top in August and rates have been in steady decline since. Circuit breakers and plunge protection teams have been in place since the 1987 crash and circuit breakers have been improved over the years, most recently after the “Flash Crash” in May 2010 so far preventing any ‘87 or ‘29 like one day declines. While the 2007-2009 bear was nasty it was rather orderly.

 

However, we are not entirely out of woods yet and we are still vulnerable to some Octoberphobia (as we saw today) and a correction of some degree before the “Worst Six Months” or year is over. After that, I expect the next “Best Six Months” to be solid as they have been after decent WSM or stronger than average after a great WSM. The S&P 500 is currently up 7.4% since the close of April 2017. Right in the wheelhouse of Worst-Six-Month gains that have been more often followed by big upside moves in the BSM.

 

We look for a continuation of the rally into and through yearend. But starting in Q1-Q2 next year we will likely begin to get concerned with the extended valuations, length of this bull market, the bearish tendencies of midterm election years, and what promises to be overarching monetary policy along with Geopolitical risk. A more significant market meltdown is more likely to occur in the latter part of Q2 through Q3 2018.

 

 

Last week’s October Stock Basket of new long stock ideas now appear in the Stock Portfolio table below. Lantheus Holdings (LNTH), Builders FirstSource (BLDR) and II-VI (IIVI) traded below their respective buy limits today. During the next update, their current Value and Net % Return will appear.

 

Applied Optoelectronics (AAOI) plunged below its buy limit and stop loss on October 13 after the company pre-announced a big third-quarter earnings disappointment. Because AAOI opened below its stop loss, no position was taken. AAOI trade is cancelled.

 

 

Over the five weeks since last update, S&P 500 climbed 2.5% higher while Russell 2000 jumped 5.5% higher as of yesterday’s close. The Almanac Investor Stock Portfolio’s blend of cash, long and short positions climbed a modest 1.3% over the same time period excluding dividends and any trading costs. Our Large-Cap portfolio performed best, up 3.1% followed by Mid-Caps up 2.2%. Small-Caps were just 0.6% higher mainly due to the sizable loss recorded by Ascendia Pharma (ASND). Prior to September 22, ASND had been weakening and was below the level it was shorted at, but when news broke that a competitor’s drug had failed trials, ASND surged to $42. ASND short position was covered on September 25 using that day’s average price which was significantly above the published stop loss.

 

PDF Solutions (PDFS), the last remaining short position in the Small-Cap portfolio should be covered. PDFS has rallied off its lows, but was down 2% today. For tracking purposes, PDFS will be covered using its average trading price tomorrow.  

 

In the Large-Cap portfolio, also cover short positions in Mattel Inc (MAT) and Mosaic (MOS). MAT has a 19.8% gain and MOS 11.7%. These are respectable gains worth taking. For tracking purposes both will be covered using their average trading price tomorrow.

 

Four other short positions remain in the portfolio, FMI, MLNX, SEE and TSLA. These positions are on Hold. Should the market take a breather and pullback in the near-term, these positions may be closed out at more advantageous levels.

 

Excluding the new long stock basket trade ideas from last week, mentioned above, all other positions in the Stock Portfolio are on hold. Please see following table for current advice and updated stop losses.

 

 

 

 

In advance of the “Best Six Months” and in preparation for when we issue our Seasonal MACD Buy signal, the ETF Portfolio has been updated below. DIA, IWM, QQQ and SPY appear at the bottom of the table. Currently there are no buy limits or stop losses. These values will be updated when we issue our Seasonal MACD Buy signal.

 

From our update earlier this month, SPDR Materials (XLB) short trade has been covered. Positions in SPDR Utilities (XLU) and CurrencyShares Swiss Franc (FXF) have also been closed out. XLU was the only winning trade of this group, up 5.1% excluding dividends or trading fees.

 

Three new positions were taken in iShares DJ US Telecom (IYZ), Vanguard REIT (VNQ) and iShares NASDAQ Biotech (IBB). IBB was added earlier today and its Return will appear in the next update.

 

Positions with Buy Limits can still be considered on dips. If they are not added, we will consider adding them when we issue our Seasonal MACD Buy signal. Continue to hold TLT, AGG, GLD and SLV.