ETF Trades: Waiting on the Fed & Watching Bitcoin By: Christopher Mistal | September 05, 2024 | Email | Print

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: https://www.stocktradersalmanac.com/LandingPages/webinar-archive.aspx). In the webinar we reviewed key seasonal pattern charts that we have been tracking throughout the year, current GDP and inflation trends, Fed interest rate expectations, and what we expect during September and October.

 

Recession concerns are in focus once again. The rebound in Q2 GDP to 3% did break a trend in prior quarters that showed growth was slowing, but employment data has continued to soften with the unemployment rate rising to 4.3% in July, the highest level since October 2021. Today’s ADP National Employment Report also signaled further softness as private payrolls increased by just 99,000 compared to consensus forecast for 140,000. This was the smallest increase since January 2021 according to ADP. Tomorrow’s nonfarm payrolls report for August from the Bureau of Labor Statistics will be even more closely watched. Any substantial deviation from the current estimate of around 160,000 new jobs will likely add to recent market volatility.

 

Historically, the market has been mixed with a bearish lean on employment report day in September over the last 21 years. Only S&P 500 and Russell 1000 have seen more positive days than negative while average performance is negative across the board ranging from –0.29% by NASDAQ to –0.17% from Russell 1000. NASDAQ has the weakest record of all. After enjoying gains in the majority of years from 2008 to 2017, losses have been most prevalent the last six years since 2018.

 

 

Barring a major miss or even a negative jobs number, we still think the Fed will most likely remain on course for just a 0.25% interest rate cut at its upcoming September 17-18 meeting and perhaps another one or two 0.25% cuts before yearend. The Fed has a track record of taking aggressive action only when needed and despite recent data softening, which was needed for inflation to meaningfully slow, the economy does not appear to be in a recession or facing a crisis.

 

 

No Sector Seasonalities from page 94 of the 2024 Almanac begin or end in September. However, about one year ago, Jeff Hirsch teamed up with Adrian Zdunczyk, CMT, Founder and CEO of THE BIRB NEST® (@Crypto_Birb) to create “The Seasonality of Bitcoin” report. You can get a copy of the report here or by copying and pasting this link into a new browser window: https://www.stocktradersalmanac.com/UploadedDocument/Seasonality _of_Cryptocurrency_Report.pdf. In the report Bitcoin demonstrated a seasonal tendency to bottom or hit a low in late September followed by a solid rally into yearend. Bitcoin’s recent price action appears to be following this seasonal trend once again.

 

 

The above chart is iShares Bitcoin Trust (IBIT), our preferred ETF to trade the seasonal setup in Bitcoin. It is highly liquid, easily accessible and has relatively low fees. It likely will not require any additional steps to trade than another other ETF trade we present. There are other ETFs available that also track Bitcoin, which are also perfectly fine options, but IBIT is the one we will use. We strongly encourage taking a moment and visiting www.ishares.com to review all relevant documents and information prior to executing any trade in IBIT.

 

After reaching an all-time high earlier this year in March, Bitcoin and IBIT have been trending modestly lower with lower highs in June and late July along with lower lows. Stochastic, relative strength and MACD are all currently negative and trending lower. IBIT may test its recent low, from early August and can be considered on dips below a buy limit of $29.15. If purchased set an initial stop loss at $26.90. This trade will be tracked in the Almanac Investor Sector Rotation ETF Portfolio.

 

 

The worst two-month span of elections years, September and October, has arrived. Market volatility has picked up as it usually does this time of the year. As a result, defensive positions in the portfolio have been doing well, and continue to perform. SPDR Consumer Staples (XLP) was up 9.6% as of the close on September 4 since being added to the portfolio in May. XLP is on Hold. SPDR Utilities (XLU) has also been strong and was recently closed out when it traded above its auto-sell price of $75.86 on August 26. Please note, the auto-sell price is just one method of locking in profits. Another option is a tight trailing stop loss once the auto-sell price is reached. If you are still holding XLU, a trailing stop loss is perfectly acceptable.

 

Other defensive positions in VanEck Gold Miners (GDX) and SPDR Gold (GLD) can both still be considered on dips below their respective buy limits. Falling interest rates, the prospect of further rate cuts, lingering inflation, geopolitical uncertainty and a softening U.S. dollar are all positive tailwinds for gold and gold miners. Seasonality also remains bullish through the end of the year.

 

Recent market volatility has been challenging to short positions in iShares Transportation (IYT) and iShares Semiconductors (SOXX). IYT was shorted in early August only to get stopped out on August 19 for a modest loss. SOXX was also shorted in early August. It also bounced higher in August but has weakened again recently. The short position in SOXX is on Hold. The short trade in SPDR Industrials (XLI) is cancelled as another whipsaw is not desired.

 

iShares Biotech (IBB) and iShares US Technology (IYW) were both added in early August. IBB and IYW can still be considered on dips below their buy limits. Although added in early August, there is no rush to get back into these positions as market volatility is still elevated. Another opportunity remains highly likely.

 

 

 

Moderating inflation, softening economic data, and Fed rate cut anticipation have all pushed longer-term interest rates lower which has lifted shares of TLT, AGG and BND. Continue to Hold TLT, AGG, and BND.

 

Short-term bond ETFs, SHV and SGOV, continue to pay a monthly dividend with a reasonably stable share price. In anticipation of a better buying opportunity later this year, SHV and SGOV can still be considered at current levels as an alternative to holding cash. As of September 3, the most recent date available, the 30-day SEC Yield for SHV was 4.94% and 5.23% for SGOV.

 

As a reminder, the earliest our Seasonal MACD Buy signal can trigger is the first trading day of October (10/1/2024). The criteria to be satisfied is a new positive crossover on MACD (8-17-9) and DJIA, S&P 500 and NASDAQ must all agree/confirm. If two are positive and one is not, the criteria is not satisfied. We expect to delve deeper into our Seasonal Buy Signal setup later this month.