ETF Trades & Updates: Oil & Gas in Play as Vaccine Rollout Nears
By: Christopher Mistal
December 03, 2020
Tomorrow morning the Bureau of Labor Statistics will release its Employment Situation report for November. Depending upon your preferred source, the consensus estimate is for a gain of approximately 450,000 net new nonfarm jobs. That would be much better than the 307,000 that ADP reported yesterday. Historically, the market has responded favorably to the jobs report released in December. S&P 500, NASDAQ, Russell 1000 and Russell 2000 have all advanced fifteen times in the last twenty years. DJIA’s record has one more loss. Average gains range from a low of 0.36% by DJIA to 0.69% by Russell 2000. Sizable losses in 2018 do drag down historical average performance, but the overall trend spanning the last twenty years remains bullish.
[Market Performance on December Jobs Day Table]
New December Seasonality
Oil companies typically come into favor in mid-December and remain so until late April or early May in the following year (yellow box in chart below). This trade has averaged 5.7%, 5.0%, and –0.5% over the last 15-, 10-, and 5-year periods. Sizable declines in 2017 and this year are depressing average performance and seasonal strength in crude oil has been ending sooner, typically in late April or early May instead of late June or July over the past ten years. This seasonality is not based upon the commodity itself (crude oil or natural gas); rather it is based upon NYSE ARCA Oil & Gas index (XOI). This price-weighted index is composed of major companies that explore for and produce oil and gas. 
Crude oil and XOI have been under pressure since January and natural gas has been stuck in a downward trend for years with only the occasional brief rally. More recently, crude oil has been rallying since Pfizer announced the effectiveness of its vaccine on November 9 while natural gas had been rising since late July before weakening in November. The global Covid-19 pandemic has cut demand while supplies remain more than sufficient. Global warming and a new administration that is more favorable towards alternative energy sources are two additional major hurdles that will remain even if wide-scale vaccinations curtail Covid-19. Given current fundamentals, this year’s seasonal rally could also be below average, but pent-up demand could surprise and support an above average seasonal rally.
[NYSE Arca Oil Index (XOI) Weekly Bars and Seasonal Pattern since 11/9/1984]
SPDR Energy (XLE) is the top pick to trade this seasonality. A new position in XLE could be established near current levels up to a buy limit of $39.70. Employ a stop loss of $32.03. Take profits at the auto sell of $46.16. Chevron is the top holding in XLE at 23.37%. The remaining top five holdings of XLE are Exxon Mobil, ConocoPhillips, Schlumberger and Phillips 66.
[SPDR Energy (XLE) Chart]
Sector Rotation ETF Portfolio Update
Since issuing our Seasonal MACD Buy signal on the close of November 5, the market and the portfolios, have continued to rally with only the occasional dip along the way. As of yesterday’s close, the portfolio’s average open position gain was 10.6%. In accordance with the Seasonal Buy Alert, all open positions have been added to the portfolio. Additionally, existing positions were also added to. Due to additional purchases, the Presented Price for XLP, IBB, XBI, IYW and XLV have been adjusted. Purchase Prices, Buy Limits, Stop Losses and Auto Sells (where used) have been updated.
ProShares UltraShort Bloomberg Crude Oil (SCO) was stopped out on November 9. This was the day Pfizer announced initial effectiveness results for their Covid-19 vaccine. The positive news lifted stocks and crude oil. Due to SCO being inverse and leveraged, it gapped right through its stop loss and was closed out for a modest 2.4% loss. 
With the exception of SPDR Gold (GLD) and iShares Silver (SLV), all other positions can still be considered on dips below their respective buy limits. There is ample time remaining of the Best Months and individual sector seasonalities for these positions to rise further. GLD and SLV are on Hold as their corresponding sector seasonalities comes to an end in December. Semiconductor and Telecom strength has also traditionally ended in December, but more recently, strength has been lasting longer. Please see table for updated buy limits and stop losses.
[Almanac Investor Sector Rotation ETF Portfolio – December 2, 2020 Closes]
Tactical Seasonal Switching Strategy Portfolio Update
Our overall outlook remains bullish for the Best Months. Thus far, despite the occasional setback, this has been the correct view as the average gain in the Tactical Seasonal Switching portfolio is 6.4% since we issued our Seasonal Buy Signal. iShares Russell 2000 (IWM) is the best performing position, up 11.2%. The laggard so far is Invescos QQQ (QQQ), up a still respectable 3.8%. We have noted the rotation from technology stocks back into reopening stocks in previous Alerts and this is well reflected by the varying degrees of gains by just these four ETFs.
Historically the first few trading days of December have been positive followed by some weakness and consolidation as early tax-loss selling pressures the market through around mid-month. Today’s trading may be an early indication that the market could be headed for a bit of a breather. Any weakness between now and mid-December could be used to add to existing positions or to establish new positions as the market historically has rallied to close out December. All positions in the portfolio can be considered on dips below their respective buy limits. 
As a reminder, these positions are intended to be held until we issue corresponding Seasonal MACD Sell Signals next year after April 1. As a result, no stop loss is suggested on these positions.
[Almanac Investor Tactical Switching Strategy Portfolio – December 2, 2020 Closes]