ETF Trades & NASDAQ’s Best Eight Months: Tech Bounce Most Welcome
By: Christopher Mistal
June 02, 2022
NASDAQ’s Best Eight Months Update
Barring a significant run higher, NASDAQ’s 13-year streak of gains during its “Best Eight Months” is likely to come to an end this year. Detailed on page 62 of the Stock Trader’s Almanac 2022, NASDAQ has averaged a solid 11.4% gain during its “Best Month” since October 2008. During the period, NASDAQ suffered five losing “Worst Months” periods, three single-digit gains and five double-digit gains. It appears the goal of the Tactical Switching Strategy, as applied to NASDAQ, of capturing the majority of the gains while potentially missing a sizable portion of declines is still being met.
[NASDAQ Daily Bars and MACD Sell Indicator Chart]
This year’s still potential NASDAQ’s “Best Months” loss will not be the first nor is it likely to be the last. With the Seasonal Sell window now open, any further damage done to NASDAQ when its current rally comes to an end is likely to be minimized or even possibly avoided altogether depending on the exact timing of when NASDAQ’s Seasonal MACD Sell Signal triggers. As of today’s close, NASDAQ would need to suffer a crushing one-day decline of nearly 20% to cause its MACD to turn negative. The more plausible scenario involves NASDAQ climbing/drifting higher while momentum and the pace of gains slows and then MACD rolls negative at a level somewhere above its present value. 
When NASDAQ’s MACD Sell indicator turns negative again, we will issue our NASDAQ Seasonal MACD Sell signal and begin clearing out remaining technology and/or small-cap positions held in the Almanac Investor ETF Portfolios. Until that time, all related positions are on Hold.
June Sector Seasonalities
There is only one new Sector Seasonality that begins in June, a bearish period for natural gas stocks that is based upon the NYSE ARCA Natural Gas index (XNG). We are going to pass on this trade setup. Russia’s invasion of Ukraine has increased uncertainty in the energy sector to lofty, potentially dangerous levels. Economic sanctions on Russia have traditional markets for its oil & gas exports scrambling to find alternates while domestically demand remains robust despite current prices. It is possible that substantial premium has already been built into to the price of natural gas along with the stocks of companies that produce it, but momentum still appears to be in the bull’s court at this time. Risk to a short trade just does not appear to balance with any potential reward at this time.
Sector Rotation ETF Portfolio Updates
Three bullish and one bearish Sector Seasonality come to an end in June. Starting at the top of the table on the bottom of page 94 in the 2022 Stock Trader’s Almanac, the bullish trade based upon XNG comes first. Our correlating ETF position, first presented in January, First Trust Natural Gas (FCG), traded above its auto-sell in April and was closed out for a 36.6% gain excluding any trading costs or dividends.
The next seasonality to end is a bearish period for gold and silver stocks based upon the Gold and Silver index (XAU). We passed on this setup as inflation concerns muddled the fundamental outlook and the technical setup appeared less than ideal. That decision has proved prudent as XAU rallied along with gold and silver during this time. Our position in SPDR Gold (GLD) is essentially unchanged since last update and remains on Hold.
Lastly, we come to the Consumer Sector, Discretionary and Staples. SPDR Consumer Discretionary (XLY) was stopped out in January and closed at $183.18 for a minuscule gain of 0.1%. SPDR Consumer Staples (XLP) was sold at its auto-sell price for $80.53 in April and a new position was established on May 12 when XLP dipped below its buy limit. Staples has a solid historical record of weathering the “Worst Six Months” well with a combination of a high frequency of gains and average performance even before considering any dividends paid. XLP is on Hold.
SPDR Technology (XLK) was stopped out on May 9. This position in XLK was originally established in March for High-Tech’s favorable period from mid-March through the beginning of July. XLK did rally to close out March but gave back all of it gains throughout April.
As much off an eye sore as it is, SPDR S&P Biotech (XBI) is on Hold. XBI is comprised of many development-stage companies that have scant revenues and expanding losses as R&D continues. Tightening monetary conditions are likely to make it even more challenging for many of these companies. We were obviously early to purchase shares, but XBI is intended to be a longer-term holding in the portfolio. XBI’s prospects will likely improve when the broader market finds firmer footing.
[Almanac Investor Sector Rotation ETF Portfolio – June 2, 2022 Closes]
Tactical Seasonal Switching Strategy Updates
We will continue to maintain a neutral bias in the Tactical Seasonal Switching portfolio until when NASDAQ’s Seasonal MACD Sell triggers. At that time the portfolio will shift to a conservative/defensive stance for the balance of the Worst Months. Surging inflation, supply chain woes and an aggressively tightening Fed appear likely to keep uncertainty and market volatility elevated this summer.
Bond positions, TLT, AGG and BND are on Hold. These are partial positions that we may or may not add to after NASDAQ’s Seasonal Sell triggers. Bonds have bounced off their respective recent lows as recession fears have grown but face further downside pressure from the Fed. Cash may prove to be the least dangerous position this “Worst Months” period. The biggest risk to cash is inflation and its erosion of purchasing power, but the Fed has repeatedly pledged to get inflation under control.
Invesco QQQ Trust (QQQ) and iShares Russell 2000 (IWM) are on Hold. As noted above, this has been a disappointing “Best Months” period, but MACD has recently turned positive and QQQ and IWM are bouncing.
[Almanac Investor Tactical Seasonal Switching Strategy ETF Portfolio – June 2, 2022 Closes]