ETF Portfolios & Seasonal MACD Updates: Tech Leads Rebound, but “Worst Months” Near
By: Christopher Mistal
May 07, 2020
Another 3.2 million Americans filed for unemployment last week bringing the seven-week total to 33.5 million. This is an unprecedented streak for an unprecedented time, and it highlights the significant impact that the coronavirus pandemic shutdown is having. One small positive aspect of this week’s number is the fact that it is a decline from the previous reading which lends further support to the possibility that the market’s lows of March could be the bottom and that bottom could hold based upon the historical correlation of jobless claims and past market bottoms that we covered in last week’s May Outlook.
However, the seven-week total is an unsettling number that suggests the road back to “normal” could be longer than the market appears to currently expect. It is getting increasingly more challenging to envision 33.5 million Americans returning to work as quickly as they left. And with NASDAQ returning to positive for the year in today’s trading it may be time to wonder if the market’s brisk recovery is possibly too far ahead of the actual economy.
One early sign that the rally may be getting well ahead of the economy can be seen in the following chart of cumulative daily advance/decline lines for NYSE, NASDAQ, Russell 2000 and the S&P 500. The recent trend since the end of April has been lower while the indexes have managed to move modestly higher. This suggests that fewer and fewer stocks are still participating in the rally. Historically when this persisted the major indexes frequently failed to move meaningfully higher and often turned lower.
[Daily Bar Chart with Cumulative Advance/Decline Lines Chart]
Seasonal MACD Update
Our Seasonal MACD indicator applied to DJIA and S&P 500 remains positive, but the margin has shrunk considerably since last update. Based upon today’s close it would take a single-day decline of 1.15% by S&P 500 and any decline from DJIA to turn both MACD indicators negative.
[DJIA Daily Bar Chart]
[S&P 500 Daily Bar Chart]
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. 
Sector Rotation Update
Last update we presented three new trade ideas best positioned to weather the upcoming “Worst Months.” Thus far the buy limits associated with SPDR Consumer Staples (XLP), SPDR Utilities (XLU) and iShares NASDAQ Biotech (IBB) have proved to be far too conservative as the broad market and these ETFs continued higher throughout all of April. Buy limits for XLP, XLU and IBB have been increased in the portfolio table below and all can still be considered on dips. If they do not trade below their buy limits, we will consider adding them when we issue our Seasonal MACD Sell Signal.
Continue to hold SPDR Gold (GLD)
[Almanac Investor Sector Rotation ETF Portfolio – May 6, 2020 Closes]
Tactical Switching Strategy Update
Although results are still disappointing for this “Best Months” period, the market’s rebound has led to an improvement in the portfolio. DIA and IWM are still the poorest performing positions while SPY has recovered to within a few percent of our original entry price and QQQ is actually up 14.6%.
Last month’s trade ideas, iShares Core U.S. Aggregate Bond (AGG) and Vanguard Total Bond Market (BND), have not yet been added as they did not trade below their respective buy limits. Buy limits for AGG and BND have been raised and both can still be considered on dips or when our Seasonal MACD Sell Signal Alert is issued.
All positions in the Tactical Seasonal Switching Strategy Portfolio are on Hold. Our seasonal MACD Sell signal for DJIA and S&P 500 can come any day now.
[Almanac Investor Tactical Seasonal Switching ETF Portfolio – May 6, 2020 Closes]