ETF Trades & Updates: Crude’s Seasonal Slide
By: Christopher Mistal
September 03, 2020
Seasonally speaking in a typical year, crude oil tends to make significant price gains in the summer, as vacationers and the annual trek of students returning to college in August creates increased demand for unleaded gasoline. The market can also price in a premium for supply disruptions due to threats of hurricanes in the Gulf of Mexico. However, towards mid-September, we often see a seasonal tendency for prices to peak out, as the driving and hurricane seasons begin to wind down. Crude oil’s seasonal decline is highlighted in yellow in the following chart.
[Crude Oil (CL) Weekly Bars and Seasonal Trend Chart (Weekly Data Aug 2019 – September 3, 2020)]
Last year this trade did not work out all that well. Crude oil did reach a peak in September and pullback into early October, but then quickly reversed and trended higher into early January of this year. Then as covid-19 began to spread, crude oil began to decline and eventually collapsed in March and April as economies around the globe shutdown in an effort to slow the spread of covid-19. As economies have reopened, to various degrees, crude oil has recovered, and the front month contract is currently trading just above $40 per barrel.
[ProShares UltraShort Bloomberg Crude Oil (SCO) Daily Bar Chart]
ProShares UltraShort Bloomberg Crude Oil (SCO) is one vehicle to take advantage of seasonal weakness. SCO’s benchmark is the Bloomberg Commodity Balanced WTI Crude Oil Sub index which is comprised of crude oil futures contracts. SCO is designed to return 200% of the inverse of the daily move of this index and has just over $100 million in assets. Its expense ratio of 0.95% is about average for a leveraged, inverse ETF.
Crude oil’s recovery from May’s lows has caused a corresponding decrease in SCO. Currently crude oil has weakened modestly and stochastic, relative strength and MACD Buy indicators applied to SCO have begun to improve. SCO could be considered at current levels up to a buy limit of $15.75. SCO will be tracked in the Almanac Investor Sector Rotation ETF Portfolio. If purchased, an initial stop loss at $14.90 is suggested.
Sector Rotation ETF Portfolio Updates
Even as the S&P 500 enjoyed the best August performance since 1986, defensive positions in the portfolio held up well. Historically dull, SPDR Consumer Staples (XLP) continued its advance and was up 18.3% at yesterday’s close. Technology has led the market higher since the March low and it was responsible for a substantial portion of August’s 7.0% S&P 500 advance (NASDAQ climbed 9.6%). Biotechnology however did not participate in August’s tech rally. iShares NASDAQ Biotech (IBB) and SPDR S&P Biotech (XBI) both slipped lower in the month as traders’ and investors’ focus shifted away from covid-19 vaccines and toward the momentum in other technology shares.
The second of July’s short trade ideas, SPDR Industrials (XLI) traded up to resistance and was shorted on August 7 but was stopped out on August 11 when it closed above its stop for a modest loss of 3.8%.
Last month’s two new trade ideas in technology and biotech have both been added to the portfolio. XBI was modestly lower at yesterday’s close and slipped another 3.7% lower today. iShares DJ US Tech (IYW) was added on August 7 and was up 12.2% at yesterday’s close. Even after today’s 5.9% decline the position is still up nicely. XBI and IYW are on Hold.
After reaching new all-time highs in early August, SPDR Gold (GLD) did pullback and surrender some of its gains. Gold’s gains were fueled by ultra-easy monetary policy, deficit spending and a weakening dollar. All that appears to have changed since gold reached its record high and the pace of dollar weakening has slowed. GLD is on Hold.
iShares Silver (SLV) was added on August 7 when it opened below its buy limit. Like gold, silver has been modestly weaker and SLV was lower by 1.5% at yesterday’s close and another 3.2% today. Should gold regain traction and breakout to new all-time highs again, silver and SLV are likely to move higher as well. SLV is on Hold.
[Almanac Investor SR ETF Portfolio – September 2, 2020 Closes]
Tactical Seasonal Switching ETF Portfolio Update
The second month of the worst two-month span (August-September) has arrived. September had gotten off to a strong start until today. September is the worst month of the year for the market since 1950 and bullish election-year forces have only had limited effect on past Septembers. Even though the market has enjoyed a stellar summer rally this year, it is not impervious to a pullback, correction or even a sizable one-day selloff.
Defensive, “Worst Months” positions in the portfolio continue to perform. AGG and BND are positive with gains of 1.6% and 1.7% respectively excluding dividends and trading costs. AGG and BND on Hold.
[Almanac Investor TSS ETF Portfolio – September 2, 2020 Closes]