ETF Trades: Top Sectors of Worst Six Months & Precious Metals
By: Christopher Mistal
May 04, 2023
In case you missed the member’s only webinar on Wednesday, the slides and video recording are available here (or copy and paste in a new browser window: In the webinar we reviewed how this year’s debt ceiling showdown eerily compares to 2011, presented and discussed the key seasonal patterns we have been tracking this year, discussed how current regional bank issues are not likely over, and how we anticipate the current Worst Months period to be volatile.
Let’s put aside the market’s recent volatility for a moment today and instead focus on some tactical adjustments that can be made in portfolios to take advantage of what has historically worked during past “Worst Six Months” while considering either shorting or outright avoiding what does not work all that frequently.
In the following table, the performance of the S&P 500 and NASDAQ during the “Worst Six Months” May to October is compared to fourteen select sector indices or sub-indices, gold and the 30-year Treasury bond. Nine of the fourteen indices chosen are S&P Sector indices. Gold and 30-year bond are continuously-linked, non-adjusted front-month futures contracts. Except for two indices, 1990-2022, a full 33 years of data was selected. This selection represents a reasonably balanced number of bull and bear years for each and a long enough timeframe to be statistically significant while representing current trends. In an effort to make an apples-to-apples comparison, dividends are not included in this study.
[Various Sector Indices & 30-Year Treasury Bond versus S&P 500 during Worst Six Months May-October Since 1990 table]
Using the S&P 500 as the baseline by which all others were compared, five indices outperformed during the “Worst Six Months” while ten others, gold and the 30-year Treasury bond underperformed based upon “AVG %” return. At the top of the list are Biotech and Information Technology with average gains of 7.51% and 4.92% during the “Worst Months.” Before jumping into Biotech positions, consider only 28 years of data was available and, in those years, Biotech was up 57.1% of the time from May through October. Some years, like 2014, gains were massive while in down years losses were frequently nearly as large. Last year’s 5.79% gain by Biotech is notable as it was one of just four sectors to record a gain. It was also second best, outdone by the NYSE ARCA Oil & Gas index.
[Biotech mini-table]
Runner-up, Information Technology with 33 years of data and a 69.7% success rate is possibly a less risky choice than Biotech. Its 4.92% AVG % performance comes by way of two fewer losses in five additional years of data. However, five of the nine losses were double digit. The worst loss was 30.88% in 2008. Other double-digit losses were in 1990 and 2000-2002. Prior to last year’s Worst Months’ decline, Information Technology was positive for nine straight. Holding existing tech-related positions with a trailing stop loss is one option to consider.
[Information Technology mini-table]
Other “Worst Six” top performers consisted mostly of the usual suspects when defensive sectors are considered. Healthcare and Consumer Staples have bested the S&P 500. Not surprisingly NASDAQ has also performed well, advancing 72.7% of the time with an average gain of 4.63%. NASDAQ’s Best Eight Months include May and June, so it does have an advantage. Although not the best sector by AVG %, Consumer Staples advancing 78.8% of the time is the closest thing to a sure bet for a gain during the “Worst Months.” Of the seven Consumer Staples declines over the last 33 years, only in the bear market years of 2002 and 2008 did the sector suffer a double-digit decline.
[Consumer Staples mini-table]
At the other end of the performance spectrum we have the sectors to consider shorting or to avoid altogether. The S&P 500 Materials sector was the worst over the past 33 years, shedding an average 1.41% during the “Worst Six.” NYSE ARCA Natural Gas was second worst by average performance, off 0.96%. PHLX Gold/Silver also recorded an average loss. However, based solely upon the percentage of time up, the stocks only, PHLX Gold/Silver index is the most consistent loser of the “Worst Six” advancing just 39.4% of the time. Aside from solid gains in 2012, 2019 and 2020, PHLX Gold/Silver has declined in nine of the last twelve “Worst Six Months.”
[PHLX Gold/Silver mini-table]
Also interesting to note is the fact that every sector, gold and 30-year bonds are all positive in May, on average. It’s not until June when things begin to fall apart for many sectors of the market and the market as a whole. July tends to see a broad bounce, but it tends to be short-lived as August and September tend to be downright ugly on average. It is this window of poor performance that has given October a lift in the past 33 years. Only Biotech, 30-year bonds and gold (futures and gold & silver stocks) manage to post gains in both August and September.
Based upon “% Up” during the “Worst Six Months,” Consumer Staples and Utilities are the top two sectors of the Worst Six Months while NYSE ARCA Natural Gas and Gold/Silver mining stocks are the worst. Historically speaking, May looks like a great time to consider rebalancing a portfolio as you will likely be closing out long positions into strength. Short trade ideas are also worth considering given June’s nearly across-the-board poor performance.
Sector Rotation ETF Portfolio New Trades & Update
Considering the above and reviewing the current holdings of the Sector Rotation portfolio, updated with yesterday’s closes, we will look to add to the existing position in SPDR Consumer Staples (XLP). Additional purchases of XLP can be considered on dips below the buy limit of $76.15. We will add to the existing position in SPDR Utilities (XLU), the second-best sector during the “Worst Months” based upon frequency of gains. XLU can be considered on dips below $67.35.
Based upon average gain, biotech and healthcare are also worthy of consideration. SPDR S&P Biotech (XBI) can be considered on dips up to its buy limit of $83.25 while SPDR Healthcare (XLV) can be purchased on pullbacks below a buy limit of $131.50. XBI had a solid April and is off to a strong May. iShares Biotech (IBB) can also be considered on dips below $130.00.
These next three trade ideas are not as well supported by the data above, but the current setup does make them worth consideration. Gold is on the verge of breaking out to new all-time highs as banking uncertainties swell and the debt ceiling deadline nears. Gold is also likely to benefit from the weakening US dollar. Silver has much further to go before it reaches its old all-time highs, but it will likely enjoy solid gains should gold break out. If gold and silver do make sizable moves higher, then the miners may also catch up. 
[SPDR Gold (GLD) Bar Chart]
SPDR Gold (GLD) can be considered on a dip below $186.50 or on a breakout above $193.50. If purchased a stop loss at $177.18 is suggested.
[iShares Silver (SLV) Bar Chart]
iShares Silver (SLV) can be considered on a dip below $23.10 or on a breakout above $24.50. If purchased a stop loss at $21.95 is suggested.
[Market Vectors Gold Miners (GDX) Bar Chart]
Market Vectors Gold Miners (GDX) can be considered on a dip below $34.00 or on a breakout above $36.50. If purchased a stop loss at $32.30 is suggested.
Per our Seasonal MACD Sell signal email sent after the close on April 25, iShares DJ Transports (IYT), SPDR Industrials (XLI) and SPDR Materials (XLB) have been closed out of the Sector Rotation portfolio using their average prices on April 26. The average gain of these three trades, excluding dividends and fees, was 11.5%.
All other positions in the portfolio are on Hold. Please note that some stop losses have been adjusted in the Sector Rotation table below. As a reminder, stop losses are based upon closing prices. If a position closes below its stop, consider closing it out the next trading day using a limit order at the stop loss price or better (higher). It is not uncommon for a position to bounce the next trading day. If the sell order does not get executed, our suggestion is to utilize your trading skills to close out the position.
[Almanac Investor Sector Rotation ETF Portfolio – May 3, 2023 Closes]
Tactical Seasonal Switching Strategy Portfolio Update
Per our Seasonal MACD Sell signal email SPDR DJIA (DIA) and SPDR S&P 500 (SPY) have been closed out of the Tactical Seasonal Switching Strategy portfolio using their average prices on April 26, logging a 9.5% average gain excluding dividends and fees. This is inline with historical Best Months performance for all years and extends the midterm-year track record to 19-0.
Partial positions in bond ETFs, TLT, AGG, BND, SHV and SGOV have also been added to the portfolio. Our plan is to add to these positions when NASDAQ’s Seasonal Sell signal triggers sometime on or after June 1. Continue to Hold QQQ and IWM.
[Almanac Investor Tactical Switching Strategy Portfolio – May 3, 2023 Closes]