Stock Portfolio Update: Accumulate New Positions
By: Christopher Mistal
November 14, 2019
Its no secret at this point, the market’s “Best Months” are now underway. From our Seasonal MACD Buy on October 11 through today’s close DJIA, S&P 500, NASDAQ and Russell 2000 have advanced an average of 4.5%. DJIA, S&P 500 and NASDAQ have all broken out to new all-time highs. Russell 2000 has not done so yet, but small-cap outperformance normally doesn’t begin in earnest until after mid-December.
After a solid multi-week run of gains, driven by a dovish Fed, earnings and optimism for a trade deal, the market appears to be pausing to digest and consolidate the move. With the market tracking historical seasonal patterns rather closely all this year, we have been expecting a pause and another opportunity to accumulate long positions here around mid-November and perhaps another chance in early December. November’s seasonal pattern, the pre-election year seasonal pattern and the trend of weakness two weeks before Thanksgiving all suggested a pause.
Further support for a brief pause/mild bout of weakness can be found in bullish sentiment readings. According to Investor Intelligence Advisor Sentiment survey, bullish advisors have reached 57.6% while bearish advisors have slipped to 17.9% and correction advisors stand at 24.5%. It is not all that unusual for bullish sentiment to remain elevated for extended periods, especially ahead of the holiday season and during the beginning of the “Best Months,” but bullish advisors have nearly reached the level they were at in July, just before the August dip. The elevated number of bulls could cause some uneasiness in the near-term for a brief period.
Technical indicators are also signaling the rally could be due for a brief pause. Stochastic, relative strength and MACD indicators applied to DJIA, S&P 500 and NASDAQ (charts below) are all extended. S&P 500 and NASDAQ are also just under projected monthly resistance (red dashed line). DJIA has modestly exceeded resistance but appears to be unable to make a meaningful move higher, almost like resistance will not completely let go.
[S&P 500 MACD Chart]
That is a case for a brief pause/pullback. However, our longer-term outlook, to year’s end and beyond remains bullish and we view any pause/pullback as a new opportunity to add to existing long positions or to establish new long positions if our Seasonal MACD Buy Signal was missed. Numerous positions in the Stock Portfolio (below) and the ETF Portfolios can be considered on dips.
Stock Portfolio Update
In the time since last update through yesterday’s close the Almanac Investor Stock Portfolio climbed 2.8% higher compared to a 6.0% advance by S&P 500 and a 7.4% gain from the Russell 2000. The portfolio’s sizable cash position played a part in capping gains in the first half of October as did the high concentration of defensive stocks held. Our October Stock Basket, released on October 17, was specifically put together to take advantage of the “Best Months” of the year. All twenty positions have been added to the portfolio. The majority of the positions were added using their respective average price on October 18. 
As of yesterday’s close, the October Basket was up on average 7.0% compared to an average gain of 3.3% by DJIA, S&P 500, NASDAQ and Russell 2000 over the same time period. The basket’s performance includes the loss recorded when Taylor Morrison (TMHC) was stopped out. A total of seven positions in the October Basket are up double digits. Qorvo (QRVO) is the best performing position, up 33.4% thus far due to strong earnings and guidance released on October 31. In the release, QRVO gave credit to an upswing in smartphone manufacturing and the 5G build out. QRVO can still be considered on small dips below its new buy limit.
The second-best position from the basket is Murphy Oil (MUR), up 25.4%. Better than expected earnings and revenues were the main catalyst for the advance. Even after this gain, MUR’s valuations remain quite reasonable and its dividend yield north of 4%, at current prices, is a nice bonus. MUR can also still be considered on dips below its new buy limit.
Rounding out the top three performing new positions is Regeneron (REGN). Once again earnings were the key driver as third quarter numbers were much better than estimates and the company shared a bullish outlook for one of its cancer treatments. REGN also announced a $1billion share buyback program. Considering the broad strength currently being exhibited by the biotech sector, REGN can still be considered on dips below its new buy limit. All other positions in the October Stock Basket can also still be considered at current levels or on dips. Updated buy limits and stop losses appear in the table below.
Previous held, mostly defensive in nature, positions in the portfolio remain on hold. Many of them have weakened modestly recently as defense has lost favor and interest rates appear to be stabilizing or at least the Fed has signaled it is likely done cutting rates for now unless there is a material change in their outlook. Many of the defensive positions also offer attractive dividend yields. A combination of growth positions and dividend paying positions should make a rewarding overall portfolio.
Please see table below for current advice, suggested stop losses and where applicable buy limits.
[Almanac Investor Stock Portfolio Table – November 13, 2019 Closes]