Seasonality is back and it appears to be increasingly asserting itself. We began seeing signs of seasonalities reemergence last September and they have only continued to increase in frequency. Today, the first day of April and the day before Good Friday, have historically been bullish and that certainly was the situation today. DJIA extended its bullish first trading day streak to 19 of the last 27 while NASDAQ’s day before Good Friday advance streak is now 20 of the last 21 years.
With seasonalities’ return, it would seem that this year’s “Worst Six Months” are increasingly likely to be seasonal. Last year’s big “Worst Months” gains are not likely to be repeated this year. Compared to one year ago, there is much to be bullish about now, but there is also plenty to be concerned with that could trip up or at least stall out the market. Valuations for one suggest that much of the good news has been factored into the market. The Fed is still highly accommodative, but as economic activity picks up it will begin to pull back on liquidity. Yet another potential major headwind is an increase in corporate tax rates.
Our Seasonal MACD Sell signal, not being issued today, could prove to be especially timely this year. In the following chart we have plotted DJIA and S&P 500 with MACD in the lower pane. As of today, both MACD indicators are positive (blue arrows). DJIA’s MACD is positive by the smallest margin, but we require DJIA and S&P 500 to both agree. Currently it would take a one-day decline of 114.13 S&P 500 points (–2.84%) and a DJIA decline of 8.70 points (–0.03%) to turn both MACD indicators negative.
Continue to hold long positions associated with DJIA’s and S&P 500’s “Best Six Months.” We will issue our Seasonal MACD Sell signal when corresponding MACD Sell indicators applied to DJIA and S&P 500 both crossover and issue a new sell signal.
Sector Rotation ETF Portfolio Update
Early March weakness was quickly reversed as Treasury yields calmed and another round of stimulus flowed from the federal government. There was a bout of seasonal weakness following quarterly options expiration. But overall, March was a solid month for the market with above average gains from the major indexes and many of the sectors represented in the table below.
At yesterday’s close, the overall Sector Rotation portfolio average return was 12.2% versus 11.5% for last update. During March, two positions traded at and above their respective Auto-Sell prices: iShares DJ Transports (IYT) and SPDR Industrials (XLI). IYT was sold on March 29 for a 25.5% gain. XLI was sold the next day for a gain of 21.9%. IYT and XLI are both fractionally higher now, but their momentum does appear to be fading as both are lagging the overall market today. Seasonal strength in both historically comes to an end in May and gains logged this time are well above average (STA page 92).
The next position that could soon be closed out with an above average gain is iShares DJ US Telecom (IYZ). On March 29, IYZ traded within $0.09 of its Auto-Sell price of $32.81. Although telecom’s seasonally favorable typically ends in December, IYZ was held longer this year as it continued to advance.
For all the inflation concern swirling about, precious metals have failed to advance. In fact quite the opposite has been happening as Treasury yields climbed higher gold and silver have slipped lower. SPDR Gold (GLD) is the oldest holding in the portfolio and it is still showing a gain and there is a Stop Loss in place to preserve some of that gain. iShares Silver (SLV) is the only losing position in the portfolio. SLV appears to be attempting a modest rebound after declining throughout March. Hold SLV with a Stop Loss at $22.25.
SPDR Utilities (XLU) has rebounded nearly on perfect seasonal cue with late-February/early-March low. Historically, XLU has been a good position to weather the “Worst Six Months,” May through October for DJIA and S&P 500. XLU can still be considered on dips below its buy limit.
All other positions are currently on Hold. Please see table for current stop losses.
Tactical Seasonal Switching Strategy Portfolio Update
As of yesterday’s close, the Tactical Seasonal Switching Strategy portfolio had an average gain of 18.3% since our Seasonal Buy Signal on November 5. iShares Russell 2000 (IWM), is still the top performing position in the basket, up 34.3%. Invescos QQQ (QQQ) remains the laggard, up 9.1%. SPDR DJIA (DIA) and SPDR S&P 500 (SPY) were mid-pack up 16.6% and 13.4% respectively. When the Seasonal MACD Sell triggers we will close out DIA and SPY.
With the calendar turning into April and in anticipation of our Seasonal MACD Sell Signal, suggested stop losses have been added to the table for QQQ and IWM. NASDAQ’s seasonal “Best Eight Months” lasts until the end of June and Russell 2000 runs concurrently. Should these positions falter early, the suggested stop losses could preserve some of the existing gains.
We have also added iShares Core U.S. Aggregate Bond (AGG) and Vanguard Total Bond Market (BND) to the table. AGG and BND take a tiered approach holding multiple duration bonds. They are still susceptible to declines but offer a fair balance between yield and rate sensitivity. AGG and BND can be considered on dips or when the Seasonal MACD Sell triggers.