ETF Trades: Energy Stocks are December’s Top Play
By: Christopher Mistal
December 07, 2017
Oil companies typically come into favor in mid-December and remain so until late April or early May in the following year (yellow box in chart below). This trade has averaged 11.8%, 8.0%, and 9.5% gains over the last 15-, 10-, and 5-year periods, This seasonality is not based upon the commodity itself; rather it is based upon NYSE ARCA Oil & Gas index (XOI). This price-weighted index is composed of major companies that explore for and produce oil and gas. 
Crude oil and XOI have been rallying since September on OPEC/Russian supply cuts and improving global growth prospects. Normally during this time the opposite is true as demand is generally waning as the summer driving season has ended and the run up to the winter heating season (a buildup in inventories ahead of anticipated demand) is largely complete. Strength during a typically weak timeframe generally carries over and amplifies gains during seasonally favorable periods.
[NYSE Arca Oil Index (XOI) Weekly Bars and Seasonal Pattern since 11/9/1984]
SPDR Energy (XLE) is the top pick to trade this seasonality. A new position in XLE could be established on pullbacks with a buy limit of $67.75. Employ a stop loss of $64.50. Take profits at the auto sell of $83.32. Exxon Mobil is the top holding in XLE at 23.25%. The remaining top five holdings of XLE are Chevron, Schlumberger, ConocoPhillips and EOG Resources.
[SPDR Energy (XLE) Chart]
Portfolio Updates
Three sector seasonalities come to an end in December: Gold & Silver, Semiconductor, and Telecom. SPDR Gold (GLD) and iShares Silver (SLV) should be sold. Both positions were trading under their respective stop losses today. For tracking purposes, GLD and SLV will both be closed out of the portfolio using their average prices on Friday, December 8. Higher interest rates, resilient stock markets and perhaps even cryptocurrencies have all weighed on precious metals.
iShares DJ US Telecom (IYZ) was stopped out in mid-November. Hold iShares PHLX Semiconductor (SOXX). SOXX suffered a brisk retreat from nearly $182 down to nearly $164 in just eight trading days. This pullback has relative strength, Stochastic and MACD indicators oversold and SOXX appears to have found support and is beginning to turn around.
On December 1, iShares NASDAQ Biotech (IBB) split three for one. As a result of the split, IBB’s Presented, Buy Limit, Stop Loss and Auto Sell prices have been adjusted. IBB can still be considered at current prices up to a Buy Limit of $105.00.
With the exception of iShares DJ Transports (IYT) and previously mentioned positions, all other positions in the ETF Portfolio can also still be considered when trading below their Buy Limits. The market is consolidating gains from the end of November and could trade sideways to modestly lower until mid-December. Afterwards, the market is likely to finish the year with another respectable rally that continues into the New Year.
[Almanac Investor ETF Portfolio – December 6, 2017 Closes]
Disclosure Note: At press time, officers of the Hirsch Organization, or accounts they control held positions in GLD, SLV, XLP and XLV. They did not hold any positions in the other ETFs mentioned in this Alert, but may buy or sell at any time.