ETF Trades & Portfolio Updates: Eyes on Utilities & High-Tech
By: Christopher Mistal
February 04, 2021
Featured in the Stock Trader’s Almanac 2021, on page 92, Sector Seasonality, there are two sectors that begin their seasonally favorable periods in March: High-Tech and Utilities. This year we are going to look to take advantage of any seasonal weakness in February to establish new or add to existing positions associated with these sectors.
In the following weekly bar chart of the Utility Sector Index (UTY), seasonal strength (lower pane, shaded in yellow) typically begins following an early or mid-March bottom and usually lasts through early October although the bulk of the move is typically done sometime in late May or early June (blue arrow). Last year’s volatile trading has impacted the seasonal pattern in the lower pane of the chart. Typically the pattern is less choppy as the sector does not typically experience price swings of nearly 40% in a year. Utilities tend to be a defensive sector of the market and historically have seen gains during the “Worst Six Months,” May through October.
[Utility Sector Index (UTY) Weekly Bars and Seasonal Trend Chart]
With over $12 billion in assets and ample average daily trading volume, SPDR Utilities (XLU) is a top choice to consider holding during Utilities’ seasonally favorable period. It has a gross expense ratio of just 0.12% and a relatively attractive yield of 3.14%. Top five holdings include: NextEra Energy, Duke Energy, Southern Co, Dominion Resources and Exelon Corp.
XLU could be bought on dips below $61.70. This is around halfway between its projected monthly pivot point (blue-dashed line in daily bar chart below) and monthly support (green-dashed line). Based upon its 15-year average return of 7.7% (excluding dividends and trading fees) during its favorable period mid-March to the beginning of October, set an auto-sell price at $73.10. If purchased an initial stop loss of $55.53 is suggested.
[SPDR Utilities (XLU) Daily Bar Chart]
Our favorite ETF to trade High-Tech’s seasonal strength from mid-March through the beginning of July is iShares DJ US Tech (IYW). Our existing position is up 16.8% as of yesterday’s close. Any February weakness could be an opportunity to add to this existing position or to establish a new position. IYW can be considered on dips below $86.30. If purchased an initial stop loss at $75.25 is suggested and should above average gains materialize take profits at the auto-sell price of $101.39. For tracking purposes, we will add to the existing position if IYW does dip below the buy limit.
[iShares DJ US Tech (IYW) Daily Bar Chart]
Sector Rotation ETF Portfolio Update
January started off in typical, long-term historical fashion with gains across the board. But by the time the month came to a close those gains had been reversed and a modest loss was recorded. As of yesterday’s close, most of the decline had been recovered and some sectors were notable higher than last update. Biotech is one standout. iShares NASDAQ Biotech (IBB) is up 22.8% while SPDR S&P Biotech (XBI) was closed out at it auto-sell last month for a total gain of 26.1%. 
Early January strength also lifted iShares PHLX Semiconductor (SOXX) and SPDR Financials (XLF) up to and through their respective auto-sell prices. SOXX was closed out for a 19.2% gain and XLF recorded a 22.2% advance. As of today’s close SOXX and XLF are only modestly higher, not much of a reward for another full month of holding time.
So far, the energy sector has held up well as the new administration has taken a more aggressive stance toward global warming. SPDR Energy (XLE) was up 5.1% at yesterday’s close and added over 1% in today’s trading. The long, long-term outlook for fossil fuels may not be so bullish, but in the present and near future we have production cuts, an approaching summer driving season and a vaccine roll out that is likely to lift demand and prices for crude oil which should boost the share of companies in the sector.
The other energy related holding, First Trust Natural Gas (FCG) was added the day after it was presented last month when shares dipped below the buy limit. FCG was volatile in January trading from under $9 to over $11 and then back below $10, but as off yesterday’s close was up 7% since being added. Tougher regulation and fewer lease approvals could pinch supply of natural gas which could lift natural gas and FCG.
With the exception of the new trade ideas, all other positions in the portfolio are currently on Hold. Should typical February weakness occur this year, it could be an opportunity to add to existing positions or establish new positions.
[Almanac Investor Sector Rotation ETF Portfolio – February 3, 2021 Closes]
Tactical Seasonal Switching Strategy Portfolio Update
As of yesterday’s close, the Tactical Seasonal Switching Strategy portfolio has an average gain of 14.2% since our Seasonal Buy Signal on November 5. iShares Russell 2000 (IWM), is still the top performing position in the basket, now up a staggering 30.2%. Invescos QQQ (QQQ) has surged to second best, up 11.5% after being the laggard of the group last update. All positions in the portfolio are on Hold.
Please note, positions in the Tactical Switching Strategy portfolio are intended to be held until we issue corresponding Seasonal MACD Sell Signals after April 1 for DJIA and S&P 500 and after June 1 for NASDAQ and Russell 2000. Due to this no stop loss is suggested on these positions.
[Almanac Investor Tactical Switching Strategy Portfolio – February 3, 2021 Closes]