April 2023 Trading and Investment Strategy
March 30, 2023
Market at a Glance - 3/30/2023
By: Christopher Mistal
March 30, 2023
Please take a moment and register for our member’s only webinar, April 2023 Outlook and Update on Monday April 3, 2023, at 2:00 PM EDT here:
Please join us for an Almanac Investor Member’s Only discussion of recent market action with time for Q & A at the end. Jeff and Chris will cover their outlook for April, review the Tactical Seasonal Switching Strategy ETF, Sector Rotation ETF, and Stock Portfolio holdings and trades. We will also share our assessments of the Fed, inflation, recession prospects, as well as relevant updates to seasonals now in play.
If you are unable to attend the live event, please still register. Within a day of completion, we will send out an email with links to access the recording and the slides to everyone that registers.
After registering, you will receive a confirmation email containing information about joining the webinar and a reminder message.
Market at a Glance
3/30/2023: Dow 32859.03 | S&P 4050.83 | NASDAQ 12013.47 | Russell 2K 1768.38 | NYSE 15200.59 | Value Line Arith 8870.28
Seasonal: Bullish. April is the #1 performing DJIA month of the year since 1950, #2 month for S&P 500 and #4 for NASDAQ. Pre-election year performance has been stellar, DJIA +3.9%, S&P 500 +3.5%, NASDAQ +3.6%. S&P 500 and NASDAQ have only declined once in pre-election year April. But stay vigilant as our Seasonal MACD Sell Signal for DJIA and S&P 500 can trigger on or after April 3 this year.
Fundamental: Mixed. Weaknesses in the banking sector have been exposed, inflation is still elevated, Federal debt ceiling is still up in the air and corporate earnings are currently forecast to have declined in Q1. However, PPI is declining, 311k net new jobs were added in February, weekly initial jobless claims are still under 200k, and Q1 growth is currently forecasted to be 3.2% by Atlanta Fed’s GDPNow. These are not the ideal conditions for the market, but likely good enough to stave off an economic hard landing and recession.
Technical: Rebounding. DJIA, S&P 500 and NASDAQ have all reclaimed their respective 200-day moving averages. S&P 500 and NASDAQ are bullishly above their 50-day moving averages. Year-to-date NASDAQ strength has produced a bullish golden cross (50-day moving average rising through and above 200-day). MACD indicators are all positive and trending higher confirming the change in direction and momentum. Resistance at previous recovery highs could prove formidable with steps along the way. 
Monetary: 4.75 – 5.00%. Recent bank failures have only added further uncertainty to the outlook for monetary policy. Banks could tighten lending standards and give the FOMC a hand fighting inflation or perhaps not, since the banks are essentially being backed by the Federal government. Likely it only reinforces the data dependent nature of the FOMC and if inflation continues to moderate then the Fed will eventually stop increasing rates. Until uncertainty retreats, the market is likely to continue to trade choppily.
Sentiment: Neutral. According to Investor’s Intelligence Advisors Sentiment survey Bullish advisors stand at 40.8%. Correction advisors are at 32.4% while Bearish advisors numbered 26.8% as of their March 29 release. Compared to a month ago there has been little change. Bullish advisors are modestly higher at the expense of bearish advisors. Overall sentiment is supportive of additional gains.
April Outlook: Rally Into End of Best Six Months
By: Jeffrey A. Hirsch & Christopher Mistal
March 30, 2023
The last month of the Best Six Months (BSM) begins in two trading days. Our Best Six Months Seasonal MACD Sell Signal can trigger anytime on or after the first trading day of April, which is Monday April 3rd this year. NASDAQ’s Best 8 Months end in June. Here’s where we stand right now. As of today’s close, from our BSM MACD Buy Signal on October 4, 2022, DJIA is up 8.4%, S&P is up 6.9% and NASDAQ is up 7.5%. 
We are not issuing the signal at this time. We are only preparing you for when it does arrive.
When both the DJIA and S&P 500 MACD Sell indicators trigger a new sell signal on or after April 3, we will send an Almanac Investor email. We will either outright sell specific existing positions or implement tight trailing stop losses. We will also consider establishing new positions in traditionally defensive areas of the market which may include bond ETFs, gold and gold stocks, outright bearish (short) positions and other sector ETFs with a demonstrated track record during the “Worst Six Months.” All stock and ETF holdings will be evaluated at that time. ETFs providing exposure to sector seasonalities ending in April and May along with underperforming stocks in the Almanac Investor Stock Portfolio may be sold at that time as well.
As you can see here in the chart below of the S&P 500 both the 12-26-9 sell side MACD and the 8-17-9 buy side MACD are in uptrends and recently had bullish crossovers where the blue MACD line crossed above the pink signal line. This has the potential to set up a solid sell signal from above the zero line.
[S&P MACD Chart]
Even though the 4-Year Cycle “Sweet Spot” gains are less than average so far, weighed down by the headwinds discussed below, the market has held up quite impressively. There is still work to be done, but technically things have become constructive the past two weeks, finding support, and clearing some near-term resistance. Most impressively, the NASDAQ 100 (NDX) is at fresh recovery highs, up 21.4% from its December 28 close. That could be considered a bull market in many books.
Looking at the S&P 500’s technical picture in the chart below you can see that at the height of the banking crisis the S&P found support around 3800 near the old downtrend line from the January high and above its December lows. Then it cleared the old support level we had previously highlighted at 3980 which is just about equivalent to the 200-day moving average. The relief rally has now put S&P above its 50-day MA and is trying to clear some minor resistance around 4050. After that we see resistance around 4100, 4180 and 4300 near the August highs.
[S&P Technical Chart]
Remaining calm during the banking crisis selloff appears to have been prudent, but we are not out of the woods yet. Our outlook remains cautiously bullish with our base case scenario of below average pre-election year gains of 10-15% still in play. However, monetary, economic, political, and geopolitical uncertainties are likely to continue to mute the usually robust pre-election year gains. 
Central bankers, government officials, and the big banks intervened on a global scale to avert a full-blown banking crisis. They appear to have stemmed the bleeding for now, but this is a wake-up call for regulators to dig into all those banks that fall under the $250 billion cap. There is still a lingering concern as to what will turn up and what may be clawed back.
Earnings season is just around the corner. Expectations on The Street are not high, but the earnings slide is projected to bottom out in Q2. As noted on page 40 of the 2023 Almanac and in last week’s April Almanac traders and investors tend to be focused on first quarter earnings and guidance during April. With expectations low, upbeat company guidance and positive surprises would lift stocks in April.
A favorable reading tomorrow from the Fed’s preferred inflation metric, the Personal Consumption Expenditures Price Index (PCE) that shows inflation retreating and is better than expected would buoy stock prices at least in the near term. Many are betting on a Fed pivot from interest rate increases to cuts if inflation shows signs of subsiding. 
We believe there will be signs inflation is coming down, but that the Fed will pause and not pivot so quickly. CME’s FedWatch Tool currently shows a 51.5% probability of no change in rates and 48.5% for a quarter point hike. A pause vs. a cut would allow the Fed to retain (or regain) some of its integrity as the steward of the economy and a prudent inflation fighter. Fed Chair Powell would love to be known as the new Volcker.
The banking crisis may have been averted, at least for the time being. The war in Ukraine drags on, but it still appears to us like a protracted Cold War 2.0 scenario that the market has shrugged off. The earnings trough may indeed be ending. But! Let’s be devil’s advocates here. We cannot forget about the looming debt ceiling crisis. It is the same political set up as pre-election year 2011: Democratic President with a split Congress composed of a Democratic Senate majority and a Republican House majority. 
This created a standoff between the White House and House Republicans much like what’s developing in 2023. Markets topped out on the last trading day of April 2011 and entered a mini-bear phase with S&P down 19.4% on a closing basis before bottoming on October 3. 2011’s Worst Six Months were negative with the Dow down 6.7% and S&P down 8.1%. NASDAQ’s Worst 4 Months July-October were down 3.2%. S&P finished the year essentially flat at -0.003%, Dow was up 5.5%, NASDAQ was off 1.8% on the year.
With all the uncertainty and headwinds having the potential to continue to take a bite out of the usual pre-election year gains, heeding the Best Six Months MACD Sell Signal when it triggers will likely be the most prudent course of action. So now is the time to review your portfolio and get prepared to lock in these BSM gains we have, sell losers and tighten up stops.
Pulse of the Market
Despite a historically solid record of gains in March, DJIA’s struggles have persisted. After being the “least bad” index of 2022, DJIA is the laggard this year. As of the close on March 29, DJIA was down 1.30% year-to-date and was up just 0.19% in March. S&P 500 and NASDAQ have performed much better, up 4.90% and 13.95% respectively this year. DJIA closed below its 200-day moving average (1) for the first time since last November in March. This year’s laggard performance has also caused DJIA’s 50-day moving average to reverse and is currently trending lower.
But, DJIA appears to have found support in the second half of March and recent gains have brought it back above its 200-day moving average. This change in momentum is confirmed by both the faster and slower moving MACD indicators applied to DJIA (2). Both MACD indicators turned positive right after mid-month and have been bullishly trending higher. This is potentially a great setup as we head into DJIA’s historically best month of the year and pre-election years, April.
Dow Jones Industrials & MACD Chart
Bullishly the losses incurred during DJIA’s third Down Friday/Down Monday (DF/DM) of 2023 were relatively quickly reclaimed (3). Based upon our past research, the sooner DJIA bounces back, the less likely further substantial market declines were. Further DJIA gains would confirm the worst of the regional bank mini crisis is over.
After getting crushed in December, NASDAQ has been up in nine of the last twelve weeks (5). Tech leadership has helped S&P 500 advance in seven weeks this year (4). It is encouraging to see technology shares leading the way higher. However, for the rally to gain real, sustainable momentum, participation needs to be broader. 
One indication of participation improving was last week’s number of NYSE Weekly Advancers exceeding Weekly Decliners (6). In the week prior S&P 500 and NASDAQ enjoyed solid gains but breadth was negative as Weekly Decliners outnumbered Weekly Advancers by over 2 to 1. We will be watching for this week’s gains to be accompanied by positive and expanding breadth.
Following the brisk decline in Weekly New Highs and the rapid expansion of Weekly New Lows (7) in early March, this trend has also bullishly reversed. Look for New Weekly Highs to continue to expand and New Weekly Lows to decline for confirmation that the rally is going to persist into April.
Treasury bond yields still reflect the fact inflation is running hot and the Fed is in tightening mode (8) with short-date maturities yielding more than longer-date bonds. Inflation remains an issue, but bank stability is even more important. Recent failures are likely to refocus the regulatory light and could lead to further tightening of lending standards by the banks. Should banks pull back on lending, the Fed may not need to go as high with interest rates or remain at those higher levels longer. The market would likely welcome a less aggressive Fed.
Click for larger graphic…
Pulse of the Market Table
April Almanac & Vital Stats: DJIA’s Top Month
By: Jeffrey A. Hirsch & Christopher Mistal
March 23, 2023
April is the final month of the “Best Six Months” for DJIA and the S&P 500. The window for our seasonal MACD sell signal opens on April 3, the first trading day of the month this year. From our Seasonal MACD Buy Signal on October 4, 2022, through today’s close, DJIA is up 5.90% and S&P 500 is up 4.16%. This is below historical average performance due largely to persistent inflation, a tightening Fed, regional bank uncertainties and Russia’s ongoing invasion of Ukraine. But before the “Worst Months” arrive, April’s solid historical track record could help reignite the market.
[Seasonal April Market Chart]
As you can see in the above chart of the recent 21-year market performance in April and pre-election years since 1950, the month has been nearly perfect with gains steadily building from the first trading day to the last with only the occasional and minor blip along the way. April 1999 was the first month ever to gain 1000 DJIA points. However, from 2000 to 2005, “Tax” month was hit, declining in four of six years. From 2006 through 2021, April was up sixteen years in a row with an average gain of 2.9% to reclaim its position as the best DJIA month since 1950. DJIA’s streak of April gains ended in 2022’s bear market. April is now the second-best month for S&P 500 and fourth best for NASDAQ (since 1971).
The first trading day of April and the second quarter, has enjoyed notable strength over the past 28 years, advancing 20 times with an average gain of 0.29% in all 28 years for DJIA. However, five of the eight declines have occurred in the last ten years. The largest decline was in 2020 when DJIA declined 4.44% (973.65 points). Other declines were in 2001, 2002 and 2005. S&P 500’s record on April’s first trading day matches DJIA, 20 advances in 28 years. NASDAQ’s recent performance is slightly weaker than DJIA and S&P 500, but the day is still bullish for technology stocks in general with more advances than declines during the same period. April’s second trading day has also been notably strong over the past 21 years.
The first half of April used to outperform the second half, but since 1994 that has no longer been the case. The effect of April 15 Tax Deadline (April 18 for 2023) appears to be diminished with bullish days present on both sides of the day. Traders and investors appear to be more focused on first quarter earnings and guidance during April. Expectations are somewhat low for the upcoming earnings season; company guidance will likely be even more important.
Typical pre-election year strength does bolster April’s performance since 1950. April is DJIA’s best month in pre-election years (+3.9%), second best for S&P 500 (+3.5%) and third best for NASDAQ (+3.6%). Small caps measured by the Russell 2000 also perform well (+2.9%) with gains in eight of eleven pre-election year April’s since 1979. S&P 500’s and NASDAQ’s single losing pre-election year April was in 1987. 
[Midterm April Performance Table]
Monthly options expiration week frequently impacts the market positively in April and DJIA has the best track record since 1990, with an average gain of 1.23% for the week with just seven declines in 33 years. The first trading day of expiration week has a slightly better record (based upon average gain) than expiration day while the week as a whole is generally marked by respectable gains across the board. The week after has a softer long-term record, but still has a bullish leaning record.
Good Friday (as well as Passover and Easter) lands in early April this year. Historically the longer-term track record of Good Friday (page 100 of STA 2023) is bullish with notable average gains by DJIA, S&P 500, NASDAQ, and Russell 2000 on the trading day before. NASDAQ has advanced 20 of the last 22 days before Good Friday. Monday, the day after Easter has exactly the opposite record since 1980 and is in the running for the worst day after any holiday. Since 2004 the day after has been improving with S&P 500 up 12 of the last 19 with an average gain of 0.08%.
[April Vital Stats Table]
April 2023 Strategy Calendar
By: Christopher Mistal
March 23, 2023
Mid-Month Update: 2023 Outlook Update – Remain Calm
By: Jeffrey A. Hirsch & Christopher Mistal
March 16, 2023
This is the Q1 chop we forecasted. However, with the Dow’s December Low (2023 STA p 36) being breached, banking sector woes, government, and Wall Street fearmongering, as well as heightened geopolitical tensions with Russia and China we are adjusting our 2023 forecast and outlook back to our original base case scenario, which is still bullish: “Slightly below average pre-election year gains of 10-15%.”
As we see the plunge protection teams stepping up here in the U.S. and overseas and the public commitments from the powers that be to backstop these poorly managed and capitalized regional and niche banks, we believe the fallout will be contained, the contagion prevented, and a banking crisis averted. 
Looking back through the annals of bank crises since the Panic of 1907, the current banking woes pale in comparison in relative economic impact as a percent of GDP. Even the most recent comparison of SVB’s $209 billion in assets failure and second only to Washington Mutual’s $307 billion asset failure in September 2008 is misleading. 
Back in 2008 WaMu’s assets were about 2% of the $15 trillion U.S. economy vs. SVB’s at less than 1% of the current $26 trillion economy. And the situation back in 2008 during the GFC was systemic and widespread up to the top of the “too big to fail” banks. Whereas now we are looking at a few select regional, niche VC and crypto related banks with concentrated deposits and a lack of financial risk management.
There are broad differences as well. There was no Federal Reserve back in 1907. And since the Fed’s founding in 1913 interest rates were not managed – or micromanaged – anything like they have been since the GFC. If you look back through the Fed statements and minutes in the old days, as we have, the ranges were wide, and they were reacting to the bond market. Also remember the FDIC (Federal Deposit Insurance Corporation) was created in June 1933 after the run on the banks when FDR declared a 9-day banking moratorium on March 5, 1933. 
This excerpt from the end of the Minutes of the FOMC Meeting on August 18, 1981, the meeting just before the recently noted previous historic yield curve inversion in September 1981 might shed some light. (https://www.federalreserve.gov/monetarypolicy/fomchistorical1981.htm
The Chairman may call for Committee consultation if it appears to the Manager for Domestic Operations that pursuit of the monetary objectives and related reserve paths during the period before the next meeting is likely to be associated with a federal funds rate persistently outside a range of 15 to 21 percent.
There is just no comparison between today’s Fed and the Fed of the 1970s and 1980s. Forty years ago, interest rates were set by the bond market and the Fed would meet every so often to adjust their rates to match the bond market. This is the exact opposite of what is happening today. Putting things further into perspective, from the FDIC’s 2022 Q4 report there are 4,746 reporting institutions, 4,157 commercial banks and 589 savings institutions – and so far, three have failed. 
Let’s look at the technical picture. Near term support levels have been crossed, but the bottom has not fallen out and the market is trying to find support near the recent lows around the downtrend line from the 2022 highs. S&P broke the 3980-support level we highlighted in the March Outlook and on the March 1 Members Webinar. The next support test is around S&P 3780-3800 near its December lows.
[S&P Chart]
After being a bastion of safety in 2022 and holding up best, DJIA has underperformed in 2023, down –2.7% year-to-date at today’s close. Whereas S&P is up 3.1%. As previously mentioned DJIA closed below its December Closing Low on February 28 and then fell through support at 32500. DJIA is also looking for support near the 2022 downtrend line. The next test is in the 31000-31500 range. 
[DJIA Chart]
NASDAQ has been a source of resilience and strength this year after being the market’s biggest loser last year, down 33% in 2022. NASDAQ broke support we were eyeing at 11200 but has held rather firm with the next test of support near 11000. In contrast to DJIA and S&P, the NAS is still up 12% YTD – and NASDAQ 100 (NDX) or the QQQ are still up 15% YTD and just a tad off their 2023 highs. So technically there’s some work to do here, but NASDAQ and big tech action is encouraging.
[NASDAQ Chart]
Bearish sentiment ticked up the past several days with VIX popping up to 30 on Monday. CBOE Equity Only Put/Call Ratio hit 1.11 on Friday. There is some fear out there and if it recedes that can signal the end of this bout of selling. VIX also tends to make a seasonal high in March.
This week’s Investor’s Intelligence US Advisors Sentiment showed 40.3% Bulls, 27.8% Bears and 31.9% Corrections. There is a bit of lag here as it is a weekly reading, but we would suspect after this week’s market action there will be more bears and less bulls in next Tuesday’s reading. The extreme lows in the Bulls/Bears difference last June and October correlate quite well with bear market and other significant lows over the past 20 years.
[II US Advisors Sentiment Charts]
A week ago on Thursday March 9, all eyes were focused on the upcoming February Employment report, CPI and PPI readings, but regional bank woes largely pushed these key reports to the background. As we anticipated, February’s jobs numbers were better than anticipated while CPI was inline, and PPI was softer than expected. However, this positive data was largely ignored.
Focusing in on the 12-month trailing percent change of two of our favorite inflation metrics, CPI – All Items (red line) and PPI – All Commodities (blue line) shows inflation is slowing and heading back toward historical averages. In the case of PPI, it has rapidly declined from its peak above 20% and appears to be heading toward negative territory. It is also important to note the historical relationship between producer prices and consumer prices. Since 1950, producer prices have experienced much greater swings than consumer prices. More importantly, PPI has lead CPI in nearly all major trends.
Based upon the current trajectory of PPI, its 12-month percent change could be negative as soon as next month’s update scheduled to be released on April 13. If PPI is flat or little changed in June, its 12-month change could approach negative 8%. Historically, when PPI was that deeply negative, CPI also retreated briskly. Given the Fed’s known fears of deflation, a pause in rate hikes could happen soon.
[2-Yr Treasury yield versus Fed Funds Effective Rate FRED Chart]
The current shock to the regional bank sector caused a sharp reversal in the once steady rise of the 2-Year Treasury yield. Last week the 2-year Treasury was above 5%, yesterday it was below 4%. Historically, the 2-yr Treasury yield (blue line) has led the Fed Funds Effective Rate (red line). This chart also suggests that the Fed could be close to the end of the current tightening cycle.
Now that the steep 450-basis-point rate increase in less than a year is starting to bite, the Fed will likely begin to backoff. Based upon CME Group’s FedWatch Tool, as of today, there is a 79.7% chance of a 0.25% increase in interest rates at next week’s FOMC meeting. After this month’s meeting the tool’s indications become less clear, but it does appear the market is currently expecting rates to decline by the end of this year.
Inflation is easing, the jobs market is holding up and interest rates could be lower before yearend. Provided regional bank jitters do not spin out of control, it appears the Fed can pull off a soft economic landing which in turn is likely to lift stocks.
Finally, let’s not forget this is a pre-Election year and the overall bullish history that represents. Stocks have corrected here in February and March, but this was after an overheated run where prices had gotten a bit ahead of pre-election year trends, the economy, and the Fed. Perhaps we’ll just move more in line with the red STA Aggregate Cycle trendline. 
As we mentioned in the members webinar, headwinds may push the usual 4-Year Cycle Sweet Spot outsized gains a little further out this year and perhaps into 2024. However, as shown in the familiar seasonal pattern chart below S&P 500 appears to be finding that early pre-election year low point and is poised for the Q2 uptrend in the chart. 
[S&P Seasonal Chart]
Triple Witching Weeks have tended to be down in flat periods and dramatically so during bear markets. If this Triple Witching week ends higher or is not down big, it could be an indication we have seen the worst of the banking fallout and the end of the pullback. Positive March Triple Witching weeks in 2003 and 2009 confirmed the market was back in rally mode.
In the old days March used to come in like a bull and out like a bear, but nowadays crosscurrents at the end of the first quarter have turned March into an inflection point in the market where short-term trends often change course. The market is clearly at an important juncture and it’s a good time to remember Warren Buffet’s wise words to “Be greedy when others are fearful.”
Considering recent developments, we are going back to our Base Case scenario from our Annual Forecast for the balance of 2023. Bank failures are never a good thing, but the swift actions of regulators likely prevented further damage to the industry. At the least, the banks are likely to be under even greater scrutiny going forward. In the near-term we expect more volatile trading. Further out we expect the market, and the economy will recover like they both have historically done. In the meantime, keep a closer eye on portfolio holdings and heed all stop losses.
Stock Portfolio Updates: DJIA December Low Crossing Weighs
By: Christopher Mistal
March 09, 2023
Last week on Tuesday, February 28, DJIA closed below its December closing low (page 36 STA 2023) for the 38 time since 1950. Historically, this event has been associated with further market weakness. But this year we also had a bullish January Indicator Trifecta. Reviewing the data associated with both indicators we found that there were five other bullish January Indicator Trifecta years where DJIA closed below its December closing low: 1952, 1966, 1996, 2006, and 2018. Of these five year, 1966 and 2018 suffered full-year declines. Back in 1966, the U.S. was getting pulled deeper into the Vietnam War and it was also the end of the post-WWII secular bull. 2018 was a mildly challenging year that really came unraveled in its fourth quarter as the market pushed back on the Fed and interest rate increases. 1952, 1996 and 2006 saw the DJIA rally on to full-year average gains of 16.9%. S&P 500 averaged 15.2% in those three years.
[30 Trading Days Before and 60 After December Low Crossed Chart]
In the above chart of the 30 trading days before and the 60 trading days after DJIA closed below its December closing low we have split the previous 37 DJIA December low crossings into four groups along with 2023 through today’s close (March 9) for comparison. With just five occurrences, Trifecta years have been second best on average with 1966 dragging the average lower. The best performance was observed by the years that had the smallest decline after DJIA closed below its December low. Years with greater than a 10% decline after the cross had the weakest performance. Most importantly, it appears the quicker DJIA recovers after crossing below its December low, the better its performance was. DJIA’s recent decline this week has undone last week’s quick rebound.
[December Closing Low 1-year Seasonal Pattern charts]
Using the same groupings to plot DJIA’s 1-year seasonal pattern we see nearly the same outcome. Full-year performance for January Indicator Trifecta years is modestly weaker as 1966’s full-year decline pulls averages even lower, but Trifecta years remain positive. We also see smaller declines and quick recoveries lead to the best full-year average performance.
DJIA’s move back below its December closing low today is a concern. The longer the condition persists the more of a concern it will be. Tomorrow’s job’s report, next weeks CPI and PPI and finally the Fed later this month will likely be key to where DJIA goes next. Time remains for a swift recovery.
Free Lunch Wrap
Last month’s weakness brought about the end of the Free Lunch via triggering the suggested 8% trailing stop loss based upon daily closing prices. Allot (ALLT) was closed out first after closing below its stop on February 15. Intrepid Potash (IPI) was closed out six days later on the 21. Compared to last month, ALLT and IPI slipped 2.6% lower on average. With the closure of these last two positions, Free Lunch 2022 has officially come to an end.
Stock Portfolio Updates
Over the last four weeks since last update through yesterday’s close (March 8), S&P 500 declined 3.1% while Russell 2000 fell 3.2%. Over the same period the entire portfolio advanced 1.4%, excluding dividends and any fees. The only portion of the portfolio that did not contribute to the gains over the last four weeks were the final two Free Lunch stocks. Our small-cap stocks advanced 0.5%, large-caps added 0.7%, and mid-caps jumped 8.0%.
Super Micro Computer (SMCI) had a great four weeks and significantly aided mid-caps jumping over 20% higher. Prior to today’s retreat, SMCI did trade at a new all-time high. Gains appear to be driven by solid earnings and rising estimates. SMCI is on Hold.
A close second to SMCI over the same period, Perion Network (PERI) was up 18.1% from last update through its close on March 8. PERI traded at a new 52-week high earlier in the week and is climbing back toward its all-time highs last traded in 2013. Revenue and earnings have been growing and analysts appear to be jumping on the bandwagon with several upgrades in February. PERI is on Hold.
Two other notable standouts in the mid-cap portfolio are Axcelis Technologies (ACLS) and Permian Resources (PR). ACLS also traded at a new all-time high today prior to the market retreating while PR traded at a new 52-week high last week above $12. ACLS is benefiting from quietly growing revenues, earnings and its market cap which have gathered positive analyst coverage outside of this organization. PR appears to be navigating the energy market’s choppiness with better than average success. ACLS and PR are on Hold
Broad weakness in healthcare and energy did persist into March. Cross Country Healthcare (CCRN) was stopped out on February 23 and EOG Resources (EOG) was stopped out on February 17. Warmer than average winter weather and fading pandemic spending are still the most plausible reasons for recent declines. Recession concerns weighing on energy also seem reasonable, but historically healthcare has been a defensive sector as people still need and seek care regardless of the state of the economy. 
All positions not previously mentioned are on Hold. March has gotten off to a tough start as interest rate concerns have swelled. Tomorrow’s jobs report will be the first of three key data points for the Fed to digest at its next meeting in two weeks. Next week’s CPI and PPI are the others. Our sense is that the jobs report could be a bit stronger than expected as people appear to be reentering the workforce. As for CPI and PPI, research and casual observation would suggest softer than expected readings, but there are no guarantees that seasonal adjustments and updates to data collection and calculation processes won’t have the opposite effect.
[Almanac Investor Stock Portfolio Table]
Disclosure note: Officers of Hirsch Holdings Inc hold positions in EPSN, MUR & PR in personal accounts.
ETF Trades & Portfolio Updates: Bought the Dip, Waiting on Rally
By: Christopher Mistal
March 02, 2023
If you were unable to attend yesterday’s member’s only webinar, the slides and video recording are now available here (https://www.stocktradersalmanac.com/LandingPages/webinar-archive.aspx). In the webinar we presented new charts of CPI, PPI and PCE that suggest the warmer than expected readings from these inflation indexes in January may not be as big of a deal as many have suggested. The charts of PPI and PCE showed that January has historically been the month with the largest increases. The charts also point to the possibility that readings for February could be lower than currently anticipated and the Fed may not be forced to tighten further or longer.
We also covered the implications of DJIA closing below its December closing low (page 36 STA 2023) this week and reviewed other Trifecta years where this occurred. Prior to this year, there were only three other Trifecta years where DJIA closed below its December closing low, 1952, 1966, and 1996. DJIA only briefly dipped below its December closing low in 1952. 1966 was a midterm year with a bear market. In 1996, the positive January Trifecta effectively undid the historically negative implications. With DJIA rebounding today, concerns about violating its December closing low are lessened.
Updated Four Horsemen of the Economy charts also continue to show no sign of a looming U.S. recession. DJIA has rebounded from its lows of last year, consumer confidence is on the rise, inflation is slowing, and the labor market remains firm. We contend that negative GDP readings in Q1 and Q2 of 2022 marked the recession that many still seem to be waiting for. And as we have done before, we examined the possibility that some or even all our assumptions are wrong. In summary, we remain bullish for 2023, but anticipate the market to trade choppily higher as it awaits clarity from inflation metrics and the Fed.
New Sector Seasonality
Based upon Sector Seasonality found on page 94 of the Stock Trader’s Almanac 2023, there is one new sector seasonality that begins in April: Computer Tech. Over the last 25 years, Computer Tech has gained an average of 11.6% from around the middle of April until around mid-July. This year we did not close out the position established for this sector back in October in early January. Instead, we held through its historically weak seasonality that normally ends in early March.
With over $43 billion in assets and ample average daily trading volume, SPDR Technology (XLK) remains our top choice to consider holding during Computer Tech’s seasonally favorable period. It has a gross expense ratio of just 0.10%. Top five holdings include: Apple, Microsoft, NVDIA, VISA and Mastercard. Please note, Apple and Microsoft combined account for 43.38% of XLK’s holdings as of March 1 close.
If you don’t hold a position in XLK or have been waiting for an opportunity to add to an existing position, now appears to be a solid setup. XLK could be considered at its current price up to a buy limit of $138.50. After retreating during the second half of February, technical indicators applied to XLK are beginning to show signs of shifting back to positive. Relative strength (RSI) has begun to tick up after dipping to around the oversold dashed line. XLK’s Stochastic indicator also appears to be on the verge of a bullish crossover in oversold territory and the MACD histogram is also trending toward a bullish crossover.  
[SPDR Technology (XLK) Daily Bar Chart]
Sector Rotation ETF Portfolio Update
Once again February lived up to its historical reputation as the weak link in the Best Months as widespread market weakness in the second half of the month pulled the major indexes lower. Market-wide weakness did translate into declines for many positions in the Sector Rotation portfolio. However, weakness also provided an opportunity to add SPDR Utilities (XLU) and First Trust Natural Gas (FCG). 
XLU was added first on February 3 when it traded below its buy limit of $67.35. As of March 1 close, XLU was down 5.1% as rising interest rates in February pushed it lower. Utilities’ bullish seasonality lasts until October. XLU can still be considered at current levels up to its buy limit.
FCG was added on February 17 when it dipped below its buy limit. It has since rebounded and was up a modest 2.6% as of March 1. FCG can be considered on dips below its buy limit. A warmer than usual winter has allowed inventories to build, but that extra supply could quickly get consumed if summer temperatures are also above average driving demand for cooling and electricity higher.
SPDR Energy (XLE) can also be considered at current levels up to its buy limit of $90.50. Recession fears have weighed on XLE, but it appears to be making its typical seasonal low ahead of the summer driving season. In addition, China’s reopening is also likely to drive demand higher as supply remains tight.
In our last ETF portfolio update on February 1, we came into the month of February anticipating some seasonal weakness during the month and had all positions in the portfolio on “buy.” Having bought the dip, we are now awaiting the resumption of the rally. All other positions not previously mentioned in the portfolio are currently on Hold.
[Almanac Investor Sector Rotation ETF Portfolio – March 1, 2023 Closes]
Tactical Seasonal Switching Strategy Portfolio Update
As of yesterday’s close, the Tactical Seasonal Switching Strategy portfolio had an average gain of 6.6%. iShares Russell 2000 (IWM) is now the best performing position, up 8.7%. SPDR DJIA (DIA) is the second-best position up 8.4%. Invesco QQQ (QQQ) and SPDR S&P 500 (SPY) were up 4.1% and 5.2% respectively. It is encouraging to see IWM as the leader. We suspect this is due to the January Effect (page 114 of 2023 STA) and improving economic data that still shows no sign of an imminent recession in the U.S.
As a reminder, positions in the Tactical Switching Strategy portfolio are intended to be held until we issue corresponding Seasonal MACD Sell Signals after April 1 for DJIA and S&P 500 and after June 1 for NASDAQ and Russell 2000. For this reason, there are no stop losses associated with these positions. There is also a switching strategy outline on page 64 of the 2023 Almanac that holds these positions throughout pre-election and election years.
[Almanac Investor Tactical Switching Strategy Portfolio – March 1, 2023 Closes]