ETF Portfolio Updates: Rotating in May
By: Jeffrey A. Hirsch & Christopher Mistal
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May 06, 2021
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Welcome to the Worst Six Months of the year May-October.
 
Surely you have been hearing a lot about “Sell in May and Go Away” recently and you will likely be hearing more over the next several days and weeks. And much of it will be naysayers who fail to look at the data and the consistent long-term results. Like this line from a CNBC article this week titled, “Why investors should ignore the old Wall Street adage ‘Sell in May.’” 
 
Any investment strategy that you can summarize in a rhyme is probably a bad strategy. Jonathan Golub, Chief U.S. Equity Strategist at Credit Suisse. Mr. Golub is a fine analyst, but his glib remark, while witty, misses the mark and ignores the data and history
 
Over the years there have been some good Worst Six Months May-October (WSM) and some bad Best Six Months November-April (BSM), but over the long haul the numbers are irrefutable. Since 1950 through April 30, 2021 S&P averages 1.6% in WSM and 7.2% in BSM. But when you compound a one-time hypothetical $10,000 investment in each time period the numbers are astonishing. BSM gains $1,011,918, 80x greater than the WSM gain of $12,623.
 
Then there’s this MarketWatch piece also out this week that conveys the same tepid outlook we have for the Worst Six Months from Stifel’s head of institutional equity strategy, Barry Bannister based on the May-October seasonal weakness we have made famous in the Almanac
 
Mr. Bannister’s analysis is not unreasonable, but in the table he presents using the same initial $10,000 hypothetical one time investment starting in 1950 that we have published in the Almanac for 35 years he has a dubious footnote that states, “it is critical to note that investing in all 12 months of the year (i.e., never exiting the S&P 500) would now be worth $23,525,500.” 
 
If you just take the two cumulative totals in his table of $78,215 for May-October and $2,986,171 for November-April and add them together you get $3,064,386 – way off his holding-for-12-months number in the footnote. In Mr. Bannister’s defense he does recognize how the Best Six Months crushed the Worst Six Months with the “Nov-1 to Apr-30 return cumulatively 38x more than May-1 to Oct-31.”
 
We wrote the book on Sell in May – AKA the Best Six Months Switching Strategy. It was discovered by our illustrious founder Yale Hirsch, creator of the Stock Trader’s Almanac who is 97 and counting. He first published it in 1986 in the 1987, 20th Anniversary edition Stock Trader’s Almanac. The 2022, 55th Annual Edition will be sent off to the press shortly.
 
[1987 Almanac BSM image]
 
May’s Sector Seasonalities
 
Per page 92 of the 2021 Stock Trader’s Almanac, there are three new bearish sector seasonalities beginning in May; Banking, Gold & Silver and Materials. We are officially going to pass on all three this time around. Current trends and expectations for these sectors do not present a reasonably balanced risk/reward. In the near-term, the economy is reopening. The Fed is highly accommodative and fiscal policy is highly supportive. The odds of these sectors pulling back or correcting appears quite low with all the support that exists. We will continue to monitor these sectors and should the risk/reward appear to improve we may revisit shorting them. 
 
Sector Rotation ETF Portfolio
 
Full-month April performance from the major indexes was well-above historical averages this year as earnings season and vaccine rollout in the US boosted stocks. Strength in the month was concentrated in the first half which has frequently occurred as traders and investors have historically tended to push stocks higher ahead of earnings and then take profits when results are released. Around mid-month momentum did fade and on the close of April 22 our Seasonal MACD Sell for DJIA and S&P 500 triggered.
 
Prior to our Seasonal MACD Sell signal three positions reached and traded above their respective Auto Sell prices; iShares DJ US Telecom (IYZ), SPDR Technology (XLK) and Vanguard REIT (VNQ). All three positions were closed out for an average gain of 18.2%. Per our Seasonal MACD Sell Alert, SPDR Materials (XLB) was closed out at its average price on April 23 for a gain of 20.9%. These gains do not include trading costs or dividends.
 
Copper has also enjoyed above average gains during its current seasonally favorable period. A combination of limited supply due to Covid-19 and surging demand due to economies recovering, housing demand and growing use in autos, specially an ever-increasing number of available all electric models is driving a surge in price. Global X Copper Miners (COPX) was up 45.0% since mid-December at yesterday’s close. This is nearly double the gain of United States Copper (CPER) over the same time period. Forecasts are still calling for even higher prices. Continue to Hold COPX and CPER.
 
Gold and silver have been meandering sideways to lower since around the beginning of last August. But since late March both have begun trending modestly higher. Lower and/or stabilizing longer-term interest rates could be giving both a lift now, but it could prove short-lived. In contrast with past periods of easy monetary policy and heavy deficit spending, this time around cryptocurrencies appear to be the choice to park excess liquidity now. SPDR Gold (GLD) and iShares Silver (SLV) are on Hold. GLD and SLV could regain favor as regulation makes its way into crypto markets.
 
SPDR Utilities (XLU) was our first position added to the portfolio in advance of the “Worst Months.” XLU made a seasonal low nearly on perfect cue this year and had been rallying nicely until around mid-April. Since then it appears to be consolidating recent gains. XLU is on Hold.
 
All other positions are currently on Hold. Please see table for current stop losses.
 
[Almanac Investor Sector Rotation ETF Portfolio – May 5, 2021 Closes]
 
Tactical Seasonal Switching Strategy Portfolio Update
 
In accordance with our Seasonal MACD Sell for DJIA and S&P 500 that triggered on the close of April 22, SPDR DJIA (DIA) and SPDR S&P 500 (SPY) positions have been closed out of the portfolio using their respective average daily prices from April 23. DIA was closed out for a 19.9% gain and SPY a gain of 18.9%, excluding dividends and trading costs.
 
Half positions in iShares Core U.S. Aggregate Bond (AGG) and Vanguard Total Bond Market (BND) have been added to the portfolio. AGG and BND both opened below their buy limits on April 23 and were added using their respective average daily prices. AGG and BND can still be considered at current levels, up to their respective buy limits.
 
Invescos QQQ (QQQ) and iShares Russell 2000 (IWM) are on Hold. NASDAQ’s “Best Eight Months” lasts until the end of June and the earliest NASDAQ’s Seasonal MACD Sell can trigger is June 1.
 
The Tactical Switching Strategy Portfolio is essentially neutral at this time. Tech and small-caps have weakened recently, but historically more upside from both is likely. We have done some selling, but we will not be going away. Instead we have begun transitioning the portfolios to positions historically best suited to weather the “Worst Six & Four Months.”
 
[Almanac Investor Tactical Switching Strategy Portfolio – May 5, 2021 Closes]