Seasonal MACD & Stock Portfolio Update: Rebound Continues & New Stocks to Ponder
By: Christopher Mistal
April 09, 2020
Seasonal MACD Update
Fueled by hope, the Fed and massive fiscal stimulus, the market has continued to rally into April. As of today’s close, DJIA is up 27.6% from its closing low on March 23 while S&P 500 has risen 24.7%. That would be the good news. The bad news is DJIA is still down 11.5% and S&P is down 6.1% since our Seasonal MACD Buy Signal last October. NASDAQ, which has a “Best Eight Months” lasting until June is currently up 1.2% since our Seasonal Buy Signal which is encouraging and suggests DJIA and S&P 500 could also still have a positive “Best Six Months.”
[DJIA Daily Bar Chart]
[S&P 500 Daily Bar Chart]
Once again, we present daily bar charts of DJIA and S&P 500 with the current status of MACD displayed. The current rally has slowed modestly, but MACD is still positive and trending higher (indicated by the blue arrow and higher trending bars). Continue to hold long positions associated with DJIA’s and S&P 500’s “Best Six Months.” We will issue our Seasonal MACD Sell signal when corresponding MACD Sell indicators applied to DJIA and S&P 500 both crossover and issue a new sell signal. 
Based upon the magnitude and relatively brief duration of the current rally, MACD is not likely to turn negative soon. As of today’s close it would still take a single-day decline in excess of 20% (this is not a typo) by DJIA and S&P 500 to turn MACD negative.
Stock Portfolio Update
In the time since last update through yesterday’s close the Almanac Investor Stock Portfolio declined 1.2% compared to a 0.3% gain by S&P 500 and a 5.7% decline from the Russell 2000. The majority of the decline occurred shortly after last update as every position in the portfolio was stopped out except Regeneron (REGN) and ZTO Express (ZTO). Nearly every position was stopped out on March 12 as traders and investors began ditching all positions, even those in generally defensive sectors like utilities and consumer staples.
With the portfolio trimmed to just two stock holdings and the Celegene CVR, we are going to use this opportunity to make a few changes to the portfolio table. Beginning this month we are going to use the following market cap ranges at the time the position is first presented; Small-caps will be any stock with a market cap under $2 billion, Mid-cap stocks will be in the range of $2 billion to $10 billion and Large-caps will be any stock whose market cap is greater than $10 billion. This is a modest change from our previous ranges. Beginning next month we will also consolidate cash into a single balance instead of the current practice of spreading it across the three market-cap ranges, unless there are any major objections.
Many of the positions in the portfolio were defensive and had been holdings since June 2018. Many of these positions have already bounced back as historically low Treasury bond yields drive traders and investors in search of higher yields. As we would typically begin looking for quality defensive names to hold during the “Worst Six Months,” May through October for DJIA and S&P 500, we are electing to re-enter many of the previously held defensive positions along with a few new select names. These defensive positions are currently yielding around 3.5% and are shaded in grey in the table below. Buy limits and stop losses can also be found in the table below.
In addition to defensive positions just mentioned, we are also presenting some potentially more speculative trade ideas from the energy, transportation, banking, housing and auto sectors. Uncertainty is still elevated, and the end of social distancing remains unclear. The bottom may not have been reached yet in many of these new trade ideas, but the magnitude of their recent declines and prospects for a rebound in the future appear to balance the risk/reward scales sufficiently to at least consider them.
Airlines, energy, banks and housing have been beaten down for obvious reasons. We have been told to stay at home and shutdown our non-essential business (or run them in a socially distancing friendly manner) which has resulted in massive job losses. Regional banks were driven down on job loss/business shutdown credit risk but are likely to be buffered by the Fed and fiscal stimulus aimed directly at those issues. $25 per barrel oil is two-fold, a loss of demand and a price war between Russia and Saudi Arabia. Large energy companies like Exxon Mobil (XOM) appear to be priced for oil to remain at that price indefinitely and that simply does not seem all that plausible. 
Airlines are not all that different from auto makers. They both employ large numbers and provide something we all have grown very much accustomed to. So perhaps government support or a bailout keeps them afloat for now, but airlines are not going to disappear. There is likely to be some consolidation in the sector that will most likely favor the larger carriers before the worst is over. Nonetheless, we like to travel, and once social distancing is no longer needed, we will be travelling once again.
Lastly, ultra-low interest rates are likely to give housing and autos a boost once things begin to normalize. In the meantime, sales are still happening within the guidelines of social distancing improving the odds of business survival.
Please see table below for new trade ideas. Those shaded grey can be considered defensive and are in line with our long-term strategy that revolves around the Best/Worst Months. Other new trade ideas are possibly much more speculative and should be treated as such. More volatility is not out of the question nor is the possibility that the final lows of this cycle may not have occurred yet. Buy limits are set in the table below to reflect our suggested maximum price to pay for a stock. Stop losses could limit downside risk if the market takes a turn for the worse.
[Almanac Investor Stock Portfolio Table – April 8, 2020 Closes]