Stock Portfolio Update: Sticking to the Game Plan
By: Jeffrey A. Hirsch & Christopher Mistal
August 08, 2019
Okay, so the market has been volatile the past two weeks reacting to the Fed rate cut and more so the U.S.-China trade dispute. But in reality this is precisely the typical summer, especially early-August, seasonal weakness we have been warning about, so we are not panicking, but that does not mean the market is out of the woods yet. There is still some technical work to be done. 
At the risk of being repetitive, we remind you that the market continues to track the seasonal patterns closely, which suggests to us that it is likely to continue to do so. The chart below of the Pre-Election Year Seasonal Patterns clearly illustrates that despite somewhat greater amplitude DJIA, S&P 500 and NASDAQ have been following the seasonal trend this year. The late-July/early-August drop we just experienced came right on cue, which puts us on an upward trajectory through mid-September before another reversal into late-October.
Seasonal Chart
But things will need to continue to get constructive technically soon or else further declines become a higher probability. In the next chart we have updated the technical support and resistance levels for the S&P 500.
The Down Friday/Down Monday (DF/DM) broke through initial support at S&P 2875 near the old January 2018 highs, but we held the next level of support at 2815 where the S&P failed intraday back on November 7, 2018, before the December selloff, which was rather constructive. Today’s rally was further improvement, but we have yet to reclaim the level before this past DF/DM. The sooner we clear this new overhead resistance around 2955 near the May 1 intraday high and the close of Thursday August 1 just prior to this latest DF/DM, the better the technical picture will be.
If we cannot take out 2955 soon and then breach the next level of support the situation begins to look like the beginning of the selloff last October. Support at 2775 runs through several gaps and consolidations, but the next level of support around 2725 where we held in early June is important. 2650 is minor support below there, but critical support sits at the old February/April 2018 lows 2580.
If we can retake 2955 in short order then we would expect the market to drift higher into mid-September, perhaps logging minor new highs.
S&P Technical Chart
Stock Portfolio Updates
In the time since last update through yesterday’s close the Almanac Investor Stock Portfolio slipped 1.8% lower compared to a 3.4% loss by S&P 500 and a 3.2% loss from the Russell 2000. Large-cap holdings, also the majority of the portfolio, declined the most, off 4.8%. Mid-cap holdings declined 1.5% on average while small-caps shed 0.9%. Compared to the S&P 500 or Russell 2000, portfolio performance was assisted by a sizable cash position that buffered against a larger retreat. 
During the recent market retreat triggered by additional tariffs on China, a brisk weakening of the yuan and the potential impacts on already slowing global growth, both positions in the small-cap portfolio were stopped out. Mix Telematics (MIXT) had been floundering long before the pullback commenced and was quickly stopped out on August 1. Clarus Corp (CLAR) was up 27.4% last update, but those gains quickly evaporated when earnings were released on August 5 that disappointed.
Two additional positions were also stopped out in the large-cap portfolio. Ugi Corp (UGI) and Southern Copper (SCCO) were both stopped out on the close on August 5. Modest gains were recorded on both positions with SCCO suffering the biggest reversal of the two. UGI was another position that had just been treading water for a while. Here again a tough overall market and a tepid earnings report tanked shares. SCCO’s brisk decline was also earnings and overall market driven.
On a more optimistic note, market weakness did offer opportunity to establish new positions (or add to existing) in our recent defensive stock ideas. New positions were established in South Jersey Industries (SJI), NiSource Inc. (NI), Dominion Energy (D) and AT&T (T). SJI, NI and D were still trading below their respective buy limits as of yesterday’s close and could still be considered around current levels. However, T is on hold as it is up 7.8% already.
Bayer (BAYRY) is currently the best performing new defensive position, up 8.8% at yesterday’s close and another 4.2% today. BAYRY is reorganizing to focus on its core health care and crop technologies businesses, but its biggest headwind is lawsuits regarding Roundup weed killer. BAYRY is on hold. All other positions from the defensive basket not previously mentioned can still be considered near current levels or on dips. Please see updated portfolio table below for current buy limits and stop losses.
Shortly after last update, NASDAQ’s Seasonal Sell Signal triggered. This marked the end of the favorable period for tech and small-cap shares. And as the market has demonstrated lately, hard-fought gains can quickly vanish. August and September are also the two worst months for the market over the longer-term and recently as well. A defensive posture is warranted. Limit new buying, heed stop losses and consider a larger than usual cash position.
[Almanac Investor Stock Portfolio Table – August 7, 2019 Closes]