ETF Portfolio Updates: Market Takes a Breather By: Christopher Mistal | February 07, 2019 | Email | Print

Broad market strength persisted throughout the month of January into February. As of today’s close, DJIA and S&P 500 are up 7.9% year-to-date. NASDAQ is even stronger, up 9.8%. Gains since the market’s December 24th closing low now exceed 15%. Thus far the market’s performance suggests a classic “v” bottom has occurred. DJIA, S&P 500 and NASDAQ all have rebounded back above their respective 50-day moving averages and DJIA has even reclaimed its 200-day moving average.

 

 

Although today’s trading was negative there were some positives. First, DJIA still closed above its 200-day moving average. Second, all the major indexes did recover modestly by the close. This does not guarantee that weakness will end abruptly, but it does suggest a repeat of December’s rout is not highly probable. More likely is a period of reflection and consolidation following the sizable move the market has made over the last six weeks. Technical indicators such as MACD, Stochastics and relative strength are stretched and in need of a reset. Once that occurs and provided economic data and news flow remains supportive, then the rally will likely resume.

 

 

Last update in early January, we elected to cautiously re-enter many of the positions that were stopped out in December. Some of our suggested buy limits worked well while others ultimately proved to conservative. As a result, IYW, IBB, XLB and XLE were added to the portfolio. XLF, XLP, XLY, XLV, XLI, VNQ and IYT remain open positions. Given the magnitude of the recent rally and February’s historical tendency of being the weak link in the “Best Months,” we are not going to change buy limits for the open positions at this time. Should we get a period of consolidation, a better buying opportunity is possible.

 

At the top of the Sector Rotation ETF Portfolio, December’s trade ideas in copper now appear. United States Copper (CPER) and Global X Copper Miners (COPX) were both added when they traded below their buy limits back in mid-December. CPER and COPX are on Hold.

 

Last month’s new trade ideas in natural gas have also been added to the portfolio. FCG is flat while UNG is currently down 3%. The wild temperature swings experienced in the Midwest and Northeast have translated into wild price swings by natural gas. Natural gas inventories are well below the 5-year average for this time of the year which should be supportive of prices.

 

The fourth quarter correction in 2018 has improved the prospects for this year. Valuations have shrunk to more attractive levels. The decline in price also improves the odds of typical pre-election year gains. There is also plenty of time remaining in the current Best Six/Eight Months to recoup last quarter’s losses and possibly more.

 

 

 

Per last month’s advice, we added to existing positions in DIA, IWM, QQQ and SPY on January 11. All four positions opened below their respective buy limits. Because of the additional purchases the presented price has been adjusted. With the additional purchases, at a lower price, the overall gain in the TSS Portfolio is 3%. All positions in the TSS Portfolio are now on Hold.