ETF Trades: Early, But Fed Pause Launches Rally
By: Christopher Mistal
November 02, 2023
For those who were unable to attend 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 addition to the seasonal pattern charts we have been tracking and presenting throughout the year, Jeff recapped many of the concerns that the market has been working to overcome. Geopolitical issues, inflation and the 10-year Treasury yield were covered.
Typical seasonal weakness in August and September did spill into October. This is what we had been concerned about and it was expected. We anticipated the market could retreat 5-10% in the later months of the “Worst Months.” DJIA was down 9.0%, S&P 500 off 10.3% while NASDAQ was down slightly more at 12.3% from their respective summertime closing highs through their recent closing lows. Not only did the correction lineup well with seasonal patterns it also pushed fear and negative sentiment higher which from a contrarian view is a positive. 
And although it is still early to definitively say the Q3/early Q4 correction is over, more evidence is building. October has been a turnaround month and historically late October has been a good time to buy depressed stocks. This was presented in the October Strategy Calendar and in the Almanac on page 101. S&P 500 appears to have found support around 4100, right around the intra-day low on February 24, 2022, when Russia first invaded Ukraine. The market is rallying to kick off the start of November following its seasonal pattern and economic data continues to be resilient.
Continued market gains today on the heels of the Fed announcement yesterday are also positive and encouraging. Barring an unexpected resurgence in inflation, it appears the Fed is likely done increasing rates for now. This is potentially one less uncertainty for the market to grapple with.
A correction that is likely over, the Fed pausing, economic data holding up and bullish seasonality appear to be aligning to support a Q4 rally and a solid “Best Months.” The four-year cycle is also bullish with a sitting president running for re-election. We maintain our bullish outlook heading into year end and into next year. But we do not expect a straight line higher for stocks. Headline risk remains high, which is likely to contribute to volatility and some choppy trading. The “Best Months” have arrived, and we will continue buying the market’s dips.
Sector Rotation ETF Portfolio Updates
Looking at the portfolio table below, updated with November 1 closing prices, it is apparent that we were early when we picked up new October trades ideas on October 10, the day after our Tactical Seasonal MACD Buy Signal triggered. Based upon experience, it was a reasonable decision as there have been years where the market did not look back and instead just accelerated away. This was not the situation this year. Instead, the market retreated and made a modestly lower low. All positions in the Sector Ration portfolio can be considered at current levels up to their respective buy limits.
Officially our approach to all the positions in the portfolio is to buy them all at an equal weighting. However, we recognize that some of the ETFs appear to overlap such as iShares US Technology (IYW) and SPDR Technology (XLK) and there are also 13 trade ideas. If the number of ETFs and/or the overlap is a concern or issue for you, it is acceptable to be selective. It will depend on your specific goals and risk tolerance. If seeking outright growth, one possible idea is to review historical returns for the sector and select those trades associated with the greatest historical returns. The portfolio also potentially offers varying degrees of risk. Healthcare and consumer staples are generally considered more conservative than biotech and technology sectors.
[Almanac Investor Sector Rotation ETF Portfolio – November 1, 2023 Closes]
Tactical Seasonal Switching Strategy ETF Portfolio Updates
Partial positions in bond ETFs iShares 20+ Year Treasury Bond (TLT), iShares Core US Aggregate Bond (AGG) and Vanguard Total Bond Market (BND) have been stopped out of the portfolio. We were looking for a bounce higher, but that bounce did not arrive until after they had closed below their respective stop losses. The losses on TLT, AGG, and BND do not include any fees or dividends. At the start of the “Worst Months,” expectations for these positions were low as we did not expect a recession this year and the Fed was clear that fighting inflation was their primary mission. When NASDAQ’s Seasonal MACD Sell triggered back in June, we did not add to existing partial positions.
“Best Months” positions, QQQ, IWM, DIA and SPY can still be considered at current levels up to their respective buy limits. As noted above, we maintain our bullish outlook for the “Best Months,” but do expect some chop as news headline risk is elevated.
[Almanac Investor Tactical Seasonal Switching Strategy ETF Portfolio – November 1, 2023 Closes]
Disclosure note: Officers of Hirsch Holdings Inc held positions in DIA, IWM, QQQ, and IWM in personal accounts.