ETF Trades: Tech Keeps On Rolling
By: Christopher Mistal
August 06, 2020
July’s employment situation report, typically released on the first Friday of August, has largely been a market disappointment over the last nineteen years. DJIA, S&P 500, NASDAQ, Russell 1000 and Russell 2000 have all declined a majority of the time. Average, historical performance on the day has been negative with Russell 2000 declining the most, off 0.57%. Nearly across-the-board strength in five of the last eight years has improved average performance as the prior eleven-year stretch was nearly all bearish.
[Performance (%) on Employment Report Date in August Table]
Yesterday’s ADP private sector employment report showed just 167k jobs were added in July. This was nowhere near the 1 million expected. ADP also revised its June total sharply higher than their initial estimate. The ADP report has not been as reliable over the past few months as their numbers have differed widely from the official government numbers. But ADP’s number is somewhat consistent with the trend in weekly claims data and suggests Friday’s official BLS (Bureau of Labor Statistics) release could be softer than expected as well. Current estimates for the BLS report are looking for around 1.5 million jobs being added in July.
Friday’s report may have little impact on the market, just as this week’s ADP report miss had no measurable effect. The Fed has pledged to do everything in its power to support the economy on multiple occasions and another round of stimulus from the Federal government is all but guaranteed as we head toward election day. The timing and magnitude of federal stimulus may still be up in the air, but more is on its way.
New Trade Ideas for August Seasonalities
Biotechnology sector enters its historical favorable season in August. SPDR S&P Biotech (XBI) could be bought at current levels up to a buy limit of $114.00. An initial stop at $100.32 is suggested. The auto sell is $143.71 based upon historical average performance. A 14.6% average gain has occurred over the last 15 years while an average gain of 10.9% has taken place the most recent 5 years. Top five holdings are: Novavax, OPKO Health, Invitae, Emergent BioSolutions and Sorrento Therapeutics.
[SPDR S&P Biotech (XBI) Daily Bar Chart]
Over the last 15 years, High-Tech has generated an average return of 9.4%, and for the last five years the average has been 5.6% during its bullish season from mid-August to mid-January. Our top ETF within this sector is iShares DJ US Tech (IYW). Set a buy limit of $300.00 and an initial stop loss of $264.00 if purchased. Should high-tech produce above average gains, profits will be taken at the auto sell of $361.02. IYW’s top five holdings are: Apple, Microsoft, Facebook, Alphabet Class A & C shares and Nvidia. These five holdings represent 54.35% of IYW’s total holdings. Tech has been an unstoppable freight train of growth and performance, that trend is likely to continue.
[iShares DJ US Tech (IYW) Daily Bar Chart]
Sector Rotation ETF Portfolio Updates
The summer doldrums and the worst two-month span (August-September) of the year have arrived. Thus far it doesn’t really look or feel like it with the market steadily climbing higher lead by new all-time NASDAQ highs. However, there are still significant economic issues that need mending and we will stick with our strategy. As such the Sector Rotation portfolio is well positioned for the summer doldrums with exposure to defensive sectors and precious metals. Positions in SPDR Gold (GLD), SPDR Consumer Staples (XLP) and iShares NASDAQ Biotech (IBB) are on Hold. SPDR Utilities (XLU) was stopped out on July 9 when it closed just below its stop loss.
Last month’s trade ideas shorting the transports and industrial sectors may not work out this time around. iShares Transportation (IYT) was shorted on July 31 and then quickly stopped out yesterday when it closed above its stop loss. SPDR Industrials (XLI) has not yet traded at either level to establish a short position in. XLI could still be shorted near 74.94 or on a breakdown below 66.35.
Precious metals began to lift off in July. VanEck Vectors Gold Miners (GDX) was added to the portfolio on July 6 and was sold on July 27 when it traded above its auto-sell price for a quick 15.6% gain. GDX has continued to rally with gold reaching new all-time highs. iShares Silver (SLV) was regrettably not added to the portfolio as it failed to trade at or below its buy limit (by pennies) in early July. Last month’s trade in SLV has been cancelled and a new trade has been added. SLV can be bought at current levels up to a buy limit of 27.50. With gold trading at new all-time highs, silver could easily follow and quickly exceed its old highs of just over $50 per ounce.
Please see table below for current advice, updated buy limits and stop losses.
[Almanac Investor SR ETF Portfolio – August 5, 2020 Closes]
Tactical Seasonal Switching ETF Portfolio Update
Defensive, “Worst Months” positions in the portfolio have been doing their job. AGG and BND are positive with gains of 2.3% and 2.4% respectively as of yesterday’s close. AGG and BND are on Hold. Please note, their stop losses have been raised to slightly more than their purchase price. The objective of these positions is to preserve capital while offering a modest dividend.
[Almanac Investor TSS ETF Portfolio – August 5, 2020 Closes]