ETF Trades: Seasonal Low in Natural Gas Setting Up
By: Christopher Mistal
February 01, 2024
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: We began the webinar after the market closed to have the final numbers for our January Barometer and our January Indicator Trifecta. Thankfully, the S&P 500 was up 1.6% this January and the January Barometer was positive which avoids the historically worst combination for the January Indicator Trifecta where all three are negative.
Aside from our numerous January indicators, the clearest reason why we place such importance on January is the fact that no other month in the year has as much outperformance when the month is up versus when the month is down on the following 11-months or 12-months return. Since 1938, when the S&P 500 was up in January the next 11-months average a gain of 11.6%. When January is down, the next 11-months average plummets to just 1.2%. Years with a positive January have historically outperformed a down January by 10.4%. Over the following 12 months, the outperformance grows to 11.2%. As you can see in the following bar chart, no other month comes close to these levels. As we noted in yesterday’s email Issue, we are sticking to our Base Case scenario from our 2024 Annual Forecast.
[S&P 500 Outperformance - Up Month versus Down Month (1938-2023)]
New February Sector Seasonality
Based upon the NYSE ARCA Natural Gas Index (XNG) there is a seasonal tendency for natural gas companies to enjoy gains from the end of February through the beginning of June. Detailed in the Stock Trader’s Almanac 2024 on page 94, this trade has returned 17.57%, 18.73%, and 21.81% on average over the past 25, 10, and 5 years respectively. Natural gas seasonal strength, the underlying commodity that drives shares of companies that comprise XNG, can be seen in the following chart, highlighted in yellow.
[NG Weekly Bars (NG) and 1-Year Seasonal Pattern since 1990]
One of the factors for this seasonal price gain is consumption driven by demand for heating homes and businesses in the cold weather northern areas in the United States. In particular, when December and January are colder than normal, we can see drawdowns in inventories through late March and occasionally into early April. This has a tendency to cause price spikes lasting through mid-April and beyond. Crude oil also tends to rise during this timeframe in anticipation of the summer driving season.
Thus far winter has been relatively mild aside from a brief arctic blast a few weeks ago. Natural gas inventories are on the decline but remain above average for this time of the year versus historical averages. A recent freeze on new liquefied natural gas (LNG) exports by the Biden Administration has also taken its toll on natural gas prices. However, the sharp decline in price does appear to be lining up with natural gas’s historical seasonal low typically around mid-February.
First Trust Natural Gas (FCG) is an excellent choice to gain exposure to the company side of the natural gas sector. FCG could be considered on dips below a buy limit of $22.52. Once purchased, consider using an initial stop loss of $19.87 and take profits at the auto sell, $29.12. As a reminder the auto sell price is based upon FCG’s buy limit plus the sector’s average price return over the last 25 years with an additional 10% added. Top five holdings by weighting as of yesterday’s close are: Hess Midstream, Western Midstream, Pioneer Natural Resources, ConocoPhillips, and Occidental Petroleum. The net expense ratio is reasonable at 0.6% and the fund has approximately $414.2 million in assets. For tracking purposes, we will add FCG to the Sector Rotation ETF portfolio if it trades below its buy limit.
[First Trust Natural Gas (FCG) Daily Chart]
Sector Rotation ETF Portfolio Updates
No sector seasonalities are scheduled to end during February. Per last update, iShares Semiconductor (SOXX) and iShares DJ US Telecom (IYZ) were both closed out of the portfolio on January 5 using their respective average daily prices. IYZ was closed out for a 6.8% gain excluding any dividends and trading costs. This is much better than Telecoms’ average performance over the last 5- and 10-year periods of 1.63% and 2.66% respectively. Our sale of SOXX proved to be early as shares did firm up later in January. Nonetheless, the 12.1% gain is in line with the sector’s performance over the last 10 years.
Patience with United States Copper (CPER) appears to have worked out as it did weaken in the first half of January. CPER was added to the portfolio on January 18 when it traded at our buy limit of $23.10. CPER and COPX can be considered on dips below their respective buy limits if you do not have a position or are looking to add to an existing position.
In anticipation of some seasonal weakness in February, most likely after mid-month and Presidents’ Day, all positions in the Sector Rotation portfolio can be considered on dips below their respective buy limits in the table below. This applies if you do not have an existing position(s) or if you are looking to add to an existing position(s).
Please note stop losses have been adjusted to account for recent gains.
[Almanac Investor Sector Rotation ETF Portfolio – January 31, 2024 Closes]
Tactical Seasonal Switching Strategy ETF Portfolio Updates
Despite a mixed January that produced new all-time highs for DJIA, S&P 500, and NASDAQ 100, but modest losses for Russell 2000, positions in the Tactical Seasonal Switching Strategy portfolio are now up 11.7% on average as of the close on January 31 compared to 9.3% on January 3. The modest retreat by IWM was easily offset by the gains made by QQQ, DIA, and SPY. All positions in the Tactical Seasonal Switching portfolio can be considered on dips if you do not have a position or are looking to add to an existing position. Please see the table below for new suggested buy limits. 
[Almanac Investor Tactical Seasonal Switching Strategy ETF Portfolio – January 31, 2024 Closes]
Disclosure note: Officers of Hirsch Holdings Inc held positions in DIA, IWM, QQQ, and IWM in personal accounts.