ETF Portfolios Update: Rate Jitters Hit Positions By: Christopher Mistal | March 04, 2021 | Email | Print

Fed Chairman Powell did little to sooth the market’s concerns about longer-term interest rates today. Arguably, Chairman Powell only further inflamed the market by sticking to the Fed’s recent script of acknowledging current conditions and reaffirming its position to remain accommodative until employment and inflation are at desired levels. The Fed’s tolerance for transitory inflation above 2% seems to also be an issue for the market. Major indexes only weakened further as the 10-year Treasury yield climbed back above 1.5% today. Even though the market did not get a hint of future Fed policy adjustments, major indexes did recover from their respective lows today.

 

Apparently, what the market is looking for is an indication that the Fed is paying attention to and is willing to manage the longer-term end of the yield curve. This would entail focused purchasing of longer-dated Treasuries like it most recently did in 2011. Then it was called Operation Twist. Absent that hint today, we will likely have to wait until the Fed meets later this month on the 16th and 17th. In the meantime, the market is likely to continue to be volatile while looking for technical support.

 

 

 

NASDAQ’s chart is currently the weakest of the three. Support at the late-January lows was broken today. Absent a quick rebound the next major support level for NASDAQ appears to be just above 12000, roughly its highs in September and October of last year. S&P 500 and its sizable tech weighting is still above its late January low, but it closed below its 50-day moving average today. S&P 500 around 3700 is the key current level to watch. DJIA is just below its 50-day moving average, but still nearly 1000 points above its late-January low just below 30000.

 

 

In post-election years, like this year, February and March have historically been weaker than average. February was already the weak link in the “Best Months.” Although typical February weakness did manifest early for mega-cap tech, the broader market did not succumb until later in the month. That weakness has spilled into and continued so far in March with fresh new interest rate and inflation jitters today. Outside of mega-cap tech, most positions had held up well in the Sector Rotation portfolio prior to today.

 

At yesterday’s close, the overall Sector Rotation portfolio average return was 11.5% versus 11.2% for last update. During February, two positions traded at and above their respective Auto-Sell prices: SPDR Energy (XLE) and First Trust Natural Gas (FCG). XLE was sold on February 16 for a 16.3% gain. FCG was sold about a week later on the 24th for a gain of 25.2%. XLE and FCG have continued to move higher and were the only two positions to spend the majority of today’s trading session in positive territory. In recent years, seasonal strength in crude oil and natural gas has been ending earlier. We will take these respectable gains. There could still be some upside left, but we likely caught the bulk of the seasonal move.

 

Last month’s new trade idea, SPDR Utilities (XLU) was added to the portfolio on February 17. XLU continued to trade lower afterwards, but appears to be finding some support today, trading on both sides of unchanged. The 10-year Treasury bond yield certainly has increased, but in historical context it remains low and is still less than half the yield of XLU. Shares of XLU could still be considered at current levels up to its buy limit.

 

With tech taking a breather, previously noted energy positions and copper positions also rallied briskly in February. Global X Copper Miners (COPX) was up 31.1% at yesterday’s close while Untied States Copper (CPER) was up 14.2%. Both are off more than the major indexes today, but seasonal strength does typically last until around mid-April. COPX and CPER are on Hold. Please note associated stop losses have been adjusted in the table below.  

 

iShares DJ Transports (IYT) and SPDR Industrials (XLI) also had solid performance in February. Gains can most likely be attributed to vaccine rollout and the overall positive trends in the economy. IYT and XLI did take a hit today, but the prevailing trend is toward reopening and getting back to pre-Covid activities. As long as that trend remains in place, further gains are likely.

 

All other positions are currently on Hold. Please see table for current stop losses.

 

 

 

As of yesterday’s close, the Tactical Seasonal Switching Strategy portfolio had an average gain of 14.7% since our Seasonal Buy Signal on November 5. iShares Russell 2000 (IWM), is still the top performing position in the basket, up 33.3%. Invescos QQQ (QQQ) had slipped to be the laggard, up a modest 5.7%. SPDR DJIA (DIA) and SPDR S&P 500 (SPY) were mid-pack up 10.5% and 9.1% respectively. All positions in the portfolio are on Hold.

 

As a reminder for new and seasoned members, 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.