DJIA and S&P 500 “Best Months” Over – Shifting to Market Neutral By: Christopher Mistal | May 02, 2019 | Email | Print

Yesterday after the market closed, we sent out our Tactical Seasonal Switching Strategy Sell Alert for DJIA and S&P 500. NASDAQ’s “Best Eight Months” lasts until June and we continue to hold technology and small-cap related positions in the ETF portfolio. From now until when we issue our Seasonal Sell Alert for NASDAQ (sometime on or after June 1) we are shifting the ETF Portfolio to a market neutral position by adding some exposure to short and longer duration bonds.

 

This “Best Six Months” period for DJIA and S&P 500 got off to a rocky start with the market diving into correction territory in December. Our Seasonal MACD “Buy” Signal assisted in avoiding some of the decline, but not all of it. From our October 31 “Buy” signal through yesterday’s “Sell” signal DJIA advanced 5.2% and S&P 500 7.8%. This is a below historical average showing. While somewhat disappointing, this does not mean seasonality is dead nor does it mean the strategy no longer works. It simply means there were stronger forces at work that delayed the start of typical seasonal strength. In this case, it was an overly hawkish Fed in a rush to return rates to “normal” when market forces were signaling tepid inflation and possibly tepid growth did not warrant further tightening.

 

Ultimately, the Fed did do a quick policy shift in December and the market found a bottom and quickly reversed course as well. From their Christmas eve day closing lows through their respective highs in April DJIA gained 22.3%, S&P 500 25.3% and NASDAQ an impressive 31.8%. A large portion of these gains occurred in the first four months of this year. Historically, strong starts similar to this year have not left much for the rest of the year. In addition, the “Worst Months” still have a lukewarm record in pre-election years.

 

We are not expecting a bear market to emerge in the near-term, nor are we looking for a correction or pullback like the market experienced in Q4 of last year. The market has had a solid four-month run and is more likely to experience a period of backing and filling in the near-term. Taking some profits (exiting positions related to DJIA and S&P 500 “Best Six Months”), holding onto technology and small-cap positions (“Best Eight Months” lasts until June), adding some defensive positions and adjusting stop losses is the course of action to be followed now.

 

 

In accordance with yesterday’s Seasonal MACD Sell Alert, all SPDR DJIA (DIA) and SPDR S&P 500 positions in the portfolio were closed out today using their average prices. The final numbers will appear in the next update. Invesco QQQ (QQQ) and iShares Russell 2000 (IWM) are on Hold.

 

Half positions in bond ETFs, iShares Core US Aggregate Bond (AGG) and Vanguard Total Bond Market (BND) were also established. BND was already in the portfolio as it traded below its buy limit on April 12. AGG and BND both appear in the table below with their current buy limits.

 

 

 

Per yesterday’s Sell Alert, positions in SPDR Financial (XLF), SPDR Industrials (XLI), SPDR Materials (XLB) and iShares DJ Transports (IYT) can be sold. All four sectors favorable periods come to an end in May. These positions will be closed out using today’s average price and will appear in the next ETF Portfolio update with their final performance figures. Today’s decline in crude did lift shares of IYT today making for an easy exit. Should broad market weakness continue, transports will likely follow.

 

Please see table for current advise, buy limits and stop losses for positions not mentioned.

 

 

 

Ever since trading our Free Lunch basket earlier this year, the Stock Portfolio has been accumulating an increasing amount of cash as Free Lunch stock positions were closed out. Since last update this cash position has buffered overall performance. The overall portfolio climbed 0.7% since last update. Large caps were the best performer, adding 1.8% while small caps returned the least, up just 0.2%.

 

During the recent healthcare sector retreat, long-time holding UnitedHealth (UNH) was stopped out when it closed below $230.04. UNH gained 140.2% in total after selling half on a double. Any dividends or trading costs are not included.

 

All positions in the Stock Portfolio are on Hold. Please see table below for updated suggested stop losses.