Stock & ETF Portfolio Updates: Transitioning to Bullish “Best Months” By: Christopher Mistal | November 01, 2018 | Email | Print

This past midterm-year October that ended yesterday finished well below expectations and historical averages. DJIA declined 5.1%, S&P 500 dropped 6.9% and NASDAQ was off 9.2%. October’s losses were the seventh worst decline for DJIA since 1950, fourth worst for S&P 500 and fifth worst for NASDAQ since 1971. Historically, November and December market performance did hold up following a negative October.

 

 

In the above table every down October for DJIA, S&P 500 and NASDAQ have been compiled along with their respective performance in November and December. Compared to all Octobers, DJIA and S&P 500 performance improved in November and December when October suffered a decline. DJIA’s average performance in November and December after an October decline improved to 2.3% and 1.9% compared to average gains of 1.6% and 1.7% respectively in all years. S&P 500 in November had a modestly weaker average performance following a down October, but December was notably stronger. NASDAQ’s November performance after an October decline is worse than average, but the results are heavily skewed by double-digit declines in 1973, 2000 and 2008.

 

Even better and perhaps of greater relevance is the performance of November and December in past midterm years where October was down (shaded in grey and italics in table). All midterm Novembers and Decembers were positive and average performance was nearly double or better.

 

 

Over the last three weeks since last update, S&P 500 declined 2.7% through yesterday’s close. Russell 2000 dropped 4.1% over the same time period. Overall, the entire Stock Portfolio slipped 0.9% excluding any dividends or trading fees. Mid-caps were hit the hardest, down 3.3%. Small-caps were second worst dipping 0.8%. Our Large-cap portfolio, with the largest concentration of defensive stocks, gained 1.7%. Compared to the S&P 500, the overall portfolio outperformed due to a sizable cash position and strength from a number of positions from June’s Defensive Basket.

 

June’s basket of Defensive Stocks is performing reasonable well. Of the original 21 stocks selected fifteen are still held. Fourteen are positive with an average gain of 11.5%, one is negative, five were stopped out and Pinnacle Foods (PF) merged with Conagra Brands (CAG). Including the stopped positions, the basket’s average performance is 5.7% compared to a loss of 2.5% by S&P 500 over the same time period excluding any dividends.

 

CAG’s acquisition of PF was announced back in late June and was completed on October 26. For each share of PF held, shareholders received 0.6494 shares of CAG and $43.11 in cash. The new shares of CAG appear in the table below while the cash was added to the cash balance.

 

October’s rout did result in three stock positions being stopped out. Small-cap CoHu Inc (COHU) was stopped out on October 23. Mid-cap stocks Western Alliance (WAL) and Orbotech Ltd (ORBK) were also stopped out. A modest 4.6% gain was realized by ORBK. WAL was closed out for a 39% gain while COHU was stopped out for a mild 6.7% loss.

 

The best performing defensive position is still McCormick & Company (MKC), now up 35.9%% as of yesterday’s close. Second best is Church & Dwight (CHD) up 19.4% at yesterday’s close and up another 9.3% today. OGS, MO, AEE and CMS are also enjoying double-digit gains. All positions in the stock portfolio are on Hold for now. Next week we anticipate compiling and releasing a new basket of stocks meticulously selected to take full advantage of the “Best Months.”  

 

Please see portfolio table below for updated stop loss suggestions.

 

 

 

At the start of October, before the market’s decline accelerated, we put out nine new ETF trade ideas with seasonalities that historically begin in the month of October. At that time, buy limits were reasonably below market prices, but ultimately proved to be not low enough. As a result, IYT, SOXX, XLI and XLB were added to the portfolio and subsequently stopped out. Losses in these positions have been recognized in the portfolio and new trades have been presented. IYT, SOXX, XLI and XLB can be bought at or near current levels up to their respective buy limits. In accordance with yesterday’s Buy Alert, these positions will be added to the portfolio using today’s average price.

 

Other new October trade ideas in IYZ, XLY, XLF, XLK and VNQ have been added to the portfolio and can also be considered at or near current levels up to their respective buy limits. In accordance with yesterday’s Buy Alert, we added to these existing positions today using average daily prices. Original prices will be updated to reflect the additional position.

 

Buy limits, stop losses and auto-sell prices have been updated throughout the Sector Rotation portfolio to reflect the changes made in yesterday’s Buy Alert. Please see the following table for individual ETF advice and prices.

 

 

 

Per yesterday’s Buy Alert, updated buy limits and advice appear in the table below. This table will contain all trades made in execution of our Tactical Seasonal Switching Strategy. This strategy is also known as the “Best Months” or “Sell in May.” Positions in DIA, IWM, QQQ and SPY are equal-weighted in the strategy and initially will be held without a stop loss.