Seasonal MACD & Stock Portfolio Updates: Pre-Election Year Worst Months By: Christopher Mistal | April 13, 2023 | Email | Print

 

Continue to Hold positions associated with DJIA’s and S&P 500’s “Best Months” seasonal switching strategy. As of today’s close, MACD indicators applied to DJIA, and S&P 500 are positive. It would currently take single-day DJIA and S&P 500 declines of 2323.25 points (6.83%) and 172.59 points (4.16%) respectively to turn MACD indicators negative. 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.

 

 

Pre-Election Years’ “Worst Months” Historically Meager 

 

In the following table the “Worst Months” performance of DJIA, S&P 500, and NASDAQ have been separated by year of the four-year-presidential-election cycle going back to 1951 for DJIA and S&P 500 and 1971 for NASDAQ. NASDAQ’s “Worst Months” are July through October compared to May to October for DJIA and S&P 500. Even though pre-election years have historically been the best performing year of the four-year cycle, performance during the “Worst Months” has not been the least bit impressive. In 18 pre-election year “Worst Months” periods, DJIA has averaged a meager 1.14%. S&P 500 is only slightly better +1.81% while NASDAQ’s average is under 1%. Frequency of gains or percentage of time higher in pre-election years “Worst Months” is only slightly better than 50-50.

 

 

Because of the elevated level of risk that has been historically observed during the “Worst Six Months” of the year and its historically tepid returns, reducing long exposure and developing a defensive strategy is the approach taken in the Almanac Investor Stock and ETF Portfolios. We do not merely “sell in May and go away.” Instead, we take some profits, trim or outright sell underperforming stock and ETF positions, tighten stop losses and limit adding new long exposure to positions from sectors that have a demonstrated a record of outperforming during the “Worst Months” period.

 

For those with a lower risk tolerance or a desire to take a break from trading, the “Worst Months” are a great opportunity to unwind longs and move into the relative safety of cash, Treasury bonds, gold and/or some combination of traditional defensive assets. For the first time in over a decade, cash can currently earn something other than zero. Preservation of capital may be more important than growth and with historical averages and frequency of gains reduced; the “Worst Six Months” are a good time to simply step aside if you prefer. August, September and/or October have provided some excellent buying opportunities in recent years and could do the same again this year.

 

 

Over the last five weeks since the last update through yesterday’s close (April 12), S&P 500 advanced 3.1% while Russell 2000 fell 5.6%. Over the same period the entire portfolio slipped 0.9% lower, excluding dividends and any trading fees. The small-cap portion of the portfolio was hardest hit, falling 9.6%. Large-cap positions also declined on average 1.1%. Broad energy weakness in March along with bank failures resulted in six stocks being stopped out of the entire portfolio.

 

Three of the six stopped out positions were from the energy sector. Murphy Oil (MUR) was stopped out first on March 9 when it closed below its stop loss of $38.01. Epsilon Energy (EPSN) was stopped out on March 15 while Solaris Oilfield Infrastructure (SOI) was stopped out on March 17. Ample supplies and swelling fears of recession appear to have been the main drivers for the sell-off in energy in March. Supply may be cut by some OPEC members, and recession concerns have eased, but these positions have failed to meaningfully rebound. More volatility is likely in the energy sector as economic data continues to send mixed signals. 

 

Northwest Pipe (NWPX) was performing well until mid-March. Earnings were better than forecast resulting in the fourth straight quarterly beat for the company, but on the earnings call, there appears to have been some statements that called into the question the accuracy of financial statements. After reading the transcript several times, all that appears to have been accomplished was the creation of doubt and uncertainty. Two attributes no investor wants. Given the relatively thin average daily trading volume, shares quickly sank below the stop loss.

 

Fabrinet (FN) was also stopped out in mid-March. FN enjoyed solid price gains in Q4 of last year, but peaked in early January and has been slipping since. Analyst opinions vary greatly with a mix of upgrades and downgrades already this year. Shares are down under $100 today while the major index log gains. FN may be worth another look if it can find support and stop declining. Until then we will avoid it.

 

Lastly, Steel Dynamics (STLD) was also stopped out in March. Recession concerns and weakening commodity prices appear to be driving recent declines from STLD’s early March highs. Currently, STLD’s earnings are forecast to have declined in Q1.

 

On a bullish note, Perion Network (PERI) continues to trend higher and is up over 55% since being added to the Mid-Cap portfolio last November. PERI traded at another new 52-week high last week and is closing in on its old all-time high from nearly a decade ago. Continue to Hold PERI.

 

All positions not previously mentioned are on Hold. Better than anticipated inflation metrics are giving stocks a boost now, but what the Fed does next with interest rates remains uncertain and the risk of them overtightening is as high as it has ever been during the current cycle.