DJIA and S&P 500 “Best Months” Over – Shifting to Market Neutral
By: Christopher Mistal
May 14, 2020
Yesterday after the market closed, we sent out our Tactical Seasonal Switching Strategy Sell Alert for DJIA and S&P 500. NASDAQ’s “Best Eight Months” lasts until June and we continue to hold technology and small-cap related positions in the ETF portfolio. From now until when we issue our Seasonal Sell Alert for NASDAQ (sometime on or after June 1) we are shifting the ETF Portfolio to a market neutral position by adding some exposure to short and longer duration bonds.
This “Best Six Months” period for DJIA and S&P 500 was rough to say the least. The Covid-19 induced economic shutdown hammered the market in March washing out the Sector Rotation ETF and Stock Portfolio as positions plunged through stop losses. From DJIA’s closing all-time high in February to its low on March 23 it dropped 37.1% while S&P 500 fell 33.9% over the same time period. Historic monetary and fiscal policy has been put in place and thus far it has proven effective in reversing the market’s decline, but the future still remains uncertain as countless challenges remain. 
Top of the list, a vaccine would likely solve many issues, but until one becomes available, we will need to contend with an economy that is still shedding millions of jobs per week even as some areas of the country are beginning to “reopen.” Restarting the economy hosts its own long list of issues. Will the infection rate spike? Will people even feel safe to return to work and their old routines? Only time will tell. Then there is the increasing possibility that there may be a new routine going forward as there is now an expanding number of businesses exploring and considering making “work from home” the new standard.
Tactical Seasonal Switching Strategy ETF Portfolio Updates
In accordance with yesterday’s Seasonal MACD Sell Alert, all SPDR DJIA (DIA) and SPDR S&P 500 (SPY) positions in the portfolio were closed out today using their average prices. Holding DIA and SPY without a stop loss was challenging, however they did recover a significant portion of their declines and were closed out for losses of 13.3% and 5.2% respectively. These are disappointing results, but considering the unprecedented covid-19 pandemic, they are quite reasonable. Invesco QQQ (QQQ) and iShares Russell 2000 (IWM) are on Hold.
Half positions in bond ETFs, iShares Core US Aggregate Bond (AGG) and Vanguard Total Bond Market (BND) were also established today as both traded below their respective buy limits during today’s trading session. AGG and BND both appear in the table below with their current buy limits.
[Tactical Seasonal Switching Strategy ETF Portfolio Table]
Sector Rotation ETF Portfolio Updates
Per yesterday’s Sell Alert, positions in SPDR Consumer Staples (XLP), SPDR Utilities (XLU) and iShares NASDAQ Biotech (IBB) have been added to the portfolio using their average daily price today. XLP and XLU can still be considered at current levels up to their buy limits. IBB can be considered on dips. Please note: there is no suggested stop for IBB at this time.
Please see table for current advice, buy limits and stop losses for positions not mentioned.
[Sector Rotation ETF Portfolio Table]
Stock Portfolio Updates
Early in April we elected to re-enter numerous positions that had been stopped out in March, plus we presented several new trade ideas that were more speculative in nature. With the exception of three positions, LAD, CHD and CVX, all positions presented have been added to the portfolio. As a reminder, defensive stock positions (dividend paying and generally members of the utility, medical, and/or consumer staples sectors) in the portfolio are shaded in grey.
LAD and CVX have run away and the trade ideas are being cancelled. CHD can still be considered on dips below its buy limit of $69.95. All other positions are currently on Hold. Please see table below for updated stop losses.
[Almanac Investor Stock Portfolio Table]