ETF Trades: Tariffs, Tariffs, Tariffs, Transports & Gold
By: Christopher Mistal
July 05, 2018
Over the past seventeen years, June’s employment situation report, usually released on the first Friday of July, has largely been a market disappointment. DJIA, S&P 500, NASDAQ, Russell 1000 and Russell 2000 have all declined a majority of the time. With the exception of NASDAQ, average, historical performance on the day has been slightly negative. Across the board strength in four of the last five years has greatly improved average performance as the prior twelve year stretch was heavily bearish.
[Performance (%) on Employment Report Date in July Table]
Today’s ADP private sector employment report showed 177k jobs were added in June. This was slightly softer than the 190k forecast, but the report also came with an upward revision to May’s numbers. This suggests that tomorrow’s employment situation report could be solid as well. Current estimates are looking for around 190k net new jobs were added in June and the unemployment rate is anticipated to hover around 3.8%. 
The U.S. labor market trend has been positive and likely continued in June. Which under “normal” circumstances would be positive for the market, but this time around it could also lend support for further rate hikes by the Fed which may not be beneficial. There is also the possibility of additional tariffs tomorrow that could outweigh any other data on the day.
New July Seasonalities
Two new sector seasonalities begin in the month of July. First up is a bearish seasonality in Transports which typically begins in the middle of July and lasts until the middle of October. This seasonality is based upon the Dow Jones Transportation index (DJT). Over the last 5-, 10- and 15-year time periods DJT has declined 2.9%, 4.6% and 3.8% on average during this weak timeframe.
iShares Transportation (IYT) is a good choice to establish a short position in. IYT has just over $800 million in assets, has traded an average 202,000 shares per day over the past 20 trading days and has a reasonable 0.44% expense ratio. IYT’s top five holdings include: FedEx, Norfolk Southern, Union Pacific, JB Hunt and United Parcel Service.
[iShares Transportation (IYT) Daily Bar Chart]
Similar to DJIA and S&P 500, IYT has been struggling to regain ground after peaking in late January. More recently, IYT failed at resistance (red dashed line) in mid-June and has fallen below its 50- and 200-day moving averages (magenta and red lines, respectively). Stochastic, relative strength and MACD indicators are all negative, but bouncing off oversold levels. IYT could be shorted near resistance around $197.02 or a breakdown below $184.60. If shorted, set an initial stop loss at $201.00. If tit-for-tat tariffs spiral out of control and global trade activity does slow, transports are likely to be one of the first to get hit.
July’s second seasonality is from gold & silver mining stocks. This seasonality is based upon strength in the Philadelphia Gold & Silver index that typically begins in late July and lasts until late December. Over the last five years this trade has not been that successful however, over the last fifteen years the trade has averaged 10.1%. A three-pronged approach to this trade will be taken this time around. In addition to a long position in VanEck Vectors Gold Miners (GDX) positions in SPDR Gold (GLD) and iShares Silver (SLV) are also suggested.
[VanEck Vectors Gold Miners (GDX) Daily Bar Chart]
GDX has been stuck in a narrow range between around $21 up towards $23 for the majority of the year. Recently it has shown some strength and recovered to trade back above its 50 and 200-day moving averages. Stochastic, relative strength and MACD indicators are all positive and improving. GDX could be considered on dips below $22.25. If purchased an initial stop loss at $21.25 is suggested. Take profits if GDX trades above $26.92.
[SPDR Gold Daily (GLD) Bar Chart]
[iShares Silver (SLV) Daily Bar Chart]
Physical gold and silver and the ETFs that hold them have had a challenging year. Economic growth in the U.S. appears to be accelerating (at least in the near and short-term), interest rates are on the rise, the U.S. dollar is firm and a fury of new cryptocurrency offerings have all seemingly diminished the allure of gold and silver. Both GLD and SLV sold off rather briskly in the second half of June and both appear oversold and ready for a bounce. 
GLD could be considered at current levels with a buy limit of $119. If purchased, set a stop loss at $116.00.
SLV could be considers at current levels with a buy limit of $15.10. If purchased, set a stop loss at $14.60.
Portfolio Updates
Per our NASDAQ MACD Seasonal Sell signal Alert on June 21, SPDR Technology (XLK), iShares US Tech (IYW), iShares Russell 2000 (IWM) and PowerShares QQQ (QQQ) were all closed out of the portfolio using their respective average prices on June 22. These trades have thus far proved rather timely as NASDAQ and Russell 2000 continued to decline following the Alert and have not yet recovered. 
Due to this weakness we were not able to add to existing positions in iShares 20+ Year Treasury Bond (TLT) or iShares Core US Aggregate Bond (AGG) as both did not dip below their buy limits. TLT is now on Hold. AGG could still be considered on dips below its buy limit.
Other defensive positions in SPDR Utilities (XLU) and SPDR Consumer Staples (XLP) can still be considered on dips buy their buy limits.
Sell Direxion Daily Jr Gold Miners Bear 3X (JDST). Seasonal weakness appears to have come to an end early. For tracking purposes this position will be closed out of the portfolio using its average trading price on July 6.
Please see update portfolio table below for the most recent advice, buy limits and stop losses.
[Almanac Investor ETF Portfolio July 3, 2018 Closes]
Disclosure Note: At press time, officers of the Hirsch Organization, or accounts they control held a position in AGG, IBB, TLT, XLU and XLV.