ETF Portfolio Updates & New Trades in Utilities & Tech By: Christopher Mistal & Jeffrey A. Hirsch | March 05, 2020 | Email | Print

Market volatility, large daily moves in both directions of 2-5% and huge intraday swings have taken a toll on markets and psyches. But step back for a moment and look at this chart. The February 28 low has held through this week’s wild swings. Interestingly, the February 28 lows found support right near one of our old support/resistance levels around 2875 on the S&P 500.

 

 

2875 is the level of the old January 2018 high. As you can see in the chart of the weekly bars here 2875 has been a level the S&P 500 has spent quite a bit of time at over the past 2 years. Resistance proved formidable at this level in 2018. After the late-August gap and September consolidation the market fell into a waterfall decline from this level in October 2018.

 

Then from April 2019 through October 2019 the S&P 500 traversed 2875 several times before leaving it behind in October, until now. It appears this is an important level once again. We will be keeping a close on eye on this level. It would be constructive if the market finds support here now at 2875 on the S&P 500.

 

 

Featured in the Stock Trader’s Almanac 2020, on page 92, Sector Seasonality, there are two sectors that begin their seasonally favorable periods in March: High-Tech and Utilities. High-Tech has recently gotten much cheaper after surging to start of this year while Utilities have held their ground on safe-haven demand and falling interest rates.

 

Last year Utilities had a solid year, right alongside the broader market. Even though defensive in nature, the sector produced gains last year of over 25%, excluding dividends. Diving Treasury bond yields and an uncertain growth outlook as the coronavirus continues to permeate headlines is likely to support continued gains from the sector. 

 

In the following weekly bar chart of the Utility Sector Index (UTY), seasonal strength (lower pane, shaded in yellow) typically begins following an early or mid-March bottom and usually lasts through early October although the bulk of the move is typically done sometime in late June or early July (blue arrow).

 

 

With over $13 billion in assets and ample average daily trading volume, SPDR Utilities (XLU) is a top choice to consider holding during Utilities seasonally favorable period. It has a gross expense ratio of just 0.13% and a relatively attractive yield of 2.78%. Top five holdings include: NextEra Energy, Duke Energy, Dominion Resources, Southern Co and American Electric Power Company.

 

XLU could be bought on dips below $67.20. This is around halfway between its projected monthly pivot point (blue-dashed line in daily bar chart below) and monthly resistance (red-dashed line). Based upon its 15-year average return of 7.3% (excluding dividends and trading fees) during its favorable period mid-March to the beginning of October, set an auto-sell price at $79.32. If purchased an initial stop loss of $60.48 is suggested.

 

 

Technology has had its fair share of struggles recently, but it had also enjoyed the greatest gains before the current market correction commenced. Technology has given back some of those gains, but it is still holding onto approximately half of its advance since our Seasonal MACD Buy in October of last year. Our favorite ETF to trade High-Tech’s seasonal strength from mid-March through the beginning of July is iShares DJ US Tech (IYW). Our existing position was stopped out on February 27 and closed out for a 6.4% gain. IYW can be considered on dips below 228.50. If purchased an initial stop loss at 205.65 is suggested and should above average gains materialize take profits at the auto-sell price of 267.69.

 

 

 

Early February gains quickly became losses as fear and uncertainty sunk stocks during the last week of the month. As a result of the fastest correction from new all-time highs, numerous positions in the Sector Rotation Portfolio have been stopped out. Technology related positions fared the best as they had generally enjoyed the greatest gains prior to the correction. IYW, SOXX and XLK were stopped out for modest single-digits gains.

 

Other sectors were not as fortunate. Energy related positions that were re-entered in early February were also quickly stopped out. Materials, Industrials, Financials, Consumer Discretionary and Transports were also stopped out. Losses range from a mild 2.4% by IYT to a tough 11.8% by COPX.

 

Two bright areas in the portfolio during the current correction are GLD and IBB. GLD is rallying on safe haven demand and falling interest rates. IBB has held up in hope and/or expectations that someone within the sector could be first to market with a viable vaccine.

 

Other than today’s new trade ideas in Utilities and High Tech, all other remaining positions in the Sector Rotation ETF Portfolio are currently on Hold.

 

 

 

After plunging the last week of February, the market has gone into a rollercoaster pattern of up-down, up-down so far this week. On a positive note, the lows traded on the last day of February have held and some progress has been made this week. All of the volatility makes it difficult to see but some recovery has happened even after today’s decline.