Please take a moment and register for our member’s only webinar, May 2023 Outlook and Update on Wednesday May 3, 2023, at 1:00 PM EDT here:

 

https://attendee.gotowebinar.com/register/6191705549014720092?source=eml     

 

Please join us for an Almanac Investor Member’s Only discussion of recent market action and our Seasonal Sell signal with time for Q & A at the end. Jeff and Chris will cover their outlook for May, 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.

 

 

4/27/2023: Dow 33826.16 | S&P 4135.35 | NASDAQ 12142.24 | Russell 2K 1751.22 | NYSE 15431.64 | Value Line Arith 8840.28

 

Seasonal: Neutral. May is the first month of the Worst Six Months for DJIA and S&P 500, but NASDAQ’s Best Eight Months runs through June. In pre-election years, May has been challenging, ranking second worst for S&P 500 and third worst for DJIA. NASDAQ has a mixed record however still averages +1.1% in pre-election year Mays since 1971. More recently, DJIA and S&P 500 have advanced in 9 of the last 10 Mays.

 

Fundamental: Mixed. Inflation is moderating, which suggests the Fed could consider pausing. The labor market remains remarkably resilient especially outside of the technology sector. Unemployment is at 3.5% and over 200K net new jobs were created in March. Next week new labor metrics will be available. However, Q1 GDP was softer than anticipated at 1.1% while rising credit default swap (CDS) prices on U.S. debt suggest a growing concern over the debt ceiling.

 

Technical: Range bound. Today’s rip higher was nice, but has little meaning as DJIA, S&P 500 and NASDAQ remain below their respective highs from earlier this year. Without follow-through and an eventual break out to new recovery highs, the indexes remain stuck in ranges. DJIA, S&P 500 and NASDAQ are just closer to the top of their respective ranges today. MACD indicators are still negative.

 

Monetary: 4.75 – 5.00%. On May 3 we will hear from the Fed. According to CMEGroup’s FedWatch Tool, there is an 85.4% chance of a 0.25% rate hike. But this increase will not be the primary reason for everyone tuning in to the Fed on that day. It will be what the Fed has to say about inflation and the potential future course of rates. Recent bank woes suggest the Fed probably could pause and shift toward a neutral policy stance.

 

Sentiment: Waning. According to Investor’s Intelligence Advisors Sentiment survey Bullish advisors stand at 48.6%. Correction advisors are at 26.4% while Bearish advisors numbered 25.0% as of their April 26 release. In the week prior Bullish advisors reached 50.7%, a level that has historically been seen around trading tops. It was also the highest number of bulls since November 2021, when NASDAQ last traded at an all-time high. 

 

We are thrilled to report to you this month once again from the Annual CMT Association Symposium being held in Midtown Manhattan this year. Last year we were honored to present to this august body of the finest market technicians in the land. This year it is our pleasure just to be among these giants of technical analysis to exchange ideas, hear what our peers think about current market conditions and as always learn a thing or two.

 

To kick off the event, Tyler Wood, CMT, Managing Director of the CMT Association, took a straw poll of where the S&P 500 would finish 2023. A. Below 3600 – 15%. B. Stuck between 3750 and 4250 – 58%. C. Above 4500 – 21%. D. At all-time highs – 6%. Interestingly, the bulk of this highly informed crowd is leaning toward our base case scenario of 10-15% gains. For what it’s worth, last April this group was rather bearish – and rightly so.

 

In case you missed it, we issued our Best Six Months MACD Seasonal Sell Signal for the DJIA and S&P 500 two days ago on Tuesday, April 25. We have not issued our Best 8 Months Sell Signal for NASDAQ, which lasts until June. In Tuesday’s Sell Signal issue, we presented several Almanac Investor Tactical Seasonal Switching ETF Portfolio Trades:

 

SELL SPDR DJIA (DIA) and SPDR S&P 500 (SPY) positions. Continue to HOLD Invesco QQQ (QQQ) and iShares Russell 2000 (IWM). Tech stock and market strength after the Sell Signal looks to be fortuitous for us as NASDAQ has rallied strongest over the past two days on better-than-expected earnings and guidance from big tech – notably MSFT and META. 

 

We also offered several low-fee bond ETF options: iShares Short Treasury Bond (SHV), iShares 0-3 Month Treasury Bond (SGOV), Vanguard Total Bond Market (BND), iShares Core US Aggregate Bond (AGG), and iShares 20+ Year Treasury Bond (TLT). Please review the issue and the portfolios for our current advice and suggested buy limits. We SOLD iShares DJ Transports (IYT), SPDR Industrials (XLI), and SPDR Materials (XLB) as correlating seasonalities end in May. All remaining Sector ETF holdings remain on HOLD. Please check Tuesday’s issue and the Portfolios for updated advice and stop losses.

 

While we retain our overall bullish outlook for the full year of 2023 for 10-15% gains by yearend, with all the headwinds and obstacles the market is currently facing now is the time to begin transitioning to a more neutral stance for the trepidatious Worst Six Months period from May-October. We do not simply Sell in May and go away. 

 

This time between our Best Six and Best 8 Month sell signals is when we will be making tactical adjustments, holding positions in sectors that have historically done well in the “Worst Months,” trimming losers and weak positions, limiting new buying and tightening up stops. We will also be considering new positions in historically top-performing Worst Six Months sectors as well as a new basket of defensive stocks.

 

 

The fundamental picture is not so bad. On balance Q1 earnings and guidance have come in better than expected. It’s not fantastic, but not the worst case many feared. The labor market is still robust. Q1 GDP came in at 1.1%, lower than expected. But the folks at the Atlanta Fed’s GDPNow suggest that it may mean Friday’s PCE Index reading will show that inflation is decelerating further. And that may be the data point that moves the needle for the Fed to pause after a likely additional ¼ point hike at the May meaning as well as the end of the quantitative tightening (QT) that has not really gained much traction anyway.

 

The technical picture from our vantage point at the CMT is clearly range bound with S&P 500 looking like it will remain trapped in the 3800-4200 area, until we likely break out higher in the latter part of Q3 or Q4 at the outset of the next Best Six Months. If you remember, pre-election year highs have frequently occurred in December – and quite often on the last trading day of the year – as noted on page 30 of the 2023 Stock Trader’s Almanac.

 

The Sweet Spot of the 4-Year Cycle from Q4 midterm year to Q2 pre-election appears to have hit a sour patch. This brings into play the typical Worst Six Months sideways action highlighted in the updated Pre-Election Year and Aggregate Cycle chart below. Look back at the table in the April 13 issue which shows historically meager returns during the Worst Six Months of pre-election years.

 

 

 

Last month at this time we brought this looming debt ceiling crisis to your attention. Now it’s the big story. 2023 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.  

 

Speaker McCarthy’s speech to Wall Street last week and the House’s passage of the debt ceiling bill are reminiscent of the first shots across the bow fired by Speaker Boehner and the Republican House in 2011. The 2023 standoff between the White House and House Republicans is developing much like what we witnessed in 2011. 

 

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. As this whole showdown is more telegraphed this time around and we have the experience of the 2011 battle, we suspect the impact to be lesser in 2023.

 

 

One of our astute subscribers, Alex Fodor at Sonica Capital in NYC, brought this instructive chart of the 5-Year Credit Default Swaps on U.S. Debt to our attention. This chart shows the price of insurance on U.S. debt is rising and is quickly approaching levels last seen in July 2011 just before market really rolled over into the August-September abyss. It indicates there are others besides us concerned about the debt ceiling.

 

 

May and June are the time for Almanac Investors and Traders to make tactical changes, and move toward a neutral approach. The Worst Months are here, and risk is elevated. The market has run into some rather formidable technical resistance around 4200 S&P – although support has proven stout at 3800 so far. 

 

The economy is finally slowing down as GDP fell to 1.1% in Q1, yet earnings are better than expected and labor remains robust. Inflation is still trending lower, and we expect that to continue, and while this means the Fed is nearing an end to rate hikes and their own neutral stance, it will likely take several months for the economy and the market to digest all that has transpired. Sentiment as measured by Investors Intelligence % Advisors Bullish and Bearish had reached complacent levels associated with short term tops and is now retreating. 

 

The geopolitical landscape has not improved much if at all and the debt ceiling showdown is just heating up. All this is a recipe for a sideways and volatile Worst Six Months, reinforcing our analysis that now is the time to begin repositioning our portfolio to a Worst Six Months more neutral, defensive posture. We expect a choppy market over the next several months with pullbacks and minor corrections, but for the lows to hold.

 

 

Early in April DJIA did bullishly reclaim its 50-day moving average (1), but that positive momentum faded quickly as the first reports of earnings season failed to inspire. On Tuesday, April 25, we issued our Seasonal Sell signal for DJIA and S&P 500 when MACD Sell indicators turned negative (2). As pointed out previously, numerous headwinds are weighing on markets and DJIA has not made a new recovery high since last year. DJIA is likely to remain rangebound until there is further clarity from the Fed and the debt ceiling is raised.

 

 

After recording four straight weekly gains, DJIA stumbled last week (3) and ended the streak. As of mid-afternoon today, DJIA is on track to record a modest weekly gain, but even with the gain has essentially gone nowhere since mid-April. S&P 500 (4) and NASDAQ (5) have also been flat over the last half month.

 

Weekly Advancers and Decliners (6) confirm the recent sideways and choppy trading. In weeks where the indexes advanced Weekly Advancers held a modest majority while in down weeks Weekly Decliners rose. Without broader participation, in one direction or the other, DJIA, S&P 500 and NASDAQ are likely to remain range bound. 

 

Weekly New Highs (7) have been slowly expanding since their mid-March low of 62 but are still less than half of their peak reached in early February. Similarly, New Weekly Lows have retreated yet remain stubbornly above their low count from early February. This would suggest a lack of conviction in either direction, higher or lower. Ideally New Weekly Highs would increase as the market climbs higher. Should New Weekly Lows begin increasing, that would likely foreshadow weakness.

 

After a brief pause caused by some bank woes, the 90-day Treasury yield has climbed above 5% (8). The last time it was above this level was in January and February 2007. It has been over 16 years since short-term rates were this attractive. Considering the historically tepid track record of the Worst Months, even in pre-election years, this yield could easily be a catalyst for additional “Sell in May” selling pressure this year.

 

 

As of today’s close, slower moving MACD indicators applied to DJIA and S&P 500 are negative (arrows in the charts below point to a crossover or negative histogram on the slower moving MACD used by our Seasonal Switching Strategy to issue a sell signal). We are issuing our Best Six Months MACD Seasonal Sell signal for DJIA and S&P 500. NASDAQ’s “Best Eight Months” lasts until June.

 

 

 

SELL SPDR DJIA (DIA) and SPDR S&P 500 (SPY) positions. For tracking purposes these positions will be closed out of the portfolio using their respective average prices on April 26. 

 

Continue to HOLD Invesco QQQ (QQQ) and iShares Russell 2000 (IWM) as NASDAQ’s “Best Eight Months” ends in June.

 

For this “Worst Months” period we are going to offer some low-fee options where to put cash from the positions that are being closed out ranging from relatively low-risk/low-reward to higher-risk/potentially higher reward. Please, consider your individual risk tolerance and investment objectives when choosing.

 

Consider establishing a partial position in iShares Short Treasury Bond (SHV) with a Buy Limit of $110.45. 

 

Consider establishing a partial position in iShares 0-3 Month Treasury Bond (SGOV) with a Buy Limit of $100.55.

 

Although we would consider SHV and SGOV to be low-risk/low-reward options given their relatively stable prices, they currently have quite respectable yields. When considering SHV and SGOV, please note that interest rates were still near zero just a little more than one year ago. The trailing 12-month yield of SHV and SGOV is still being impacted by the Fed’s rapid increase in interest rates over the last year.

 

Consider establishing a partial position in Vanguard Total Bond Market (BND) with a Buy Limit of $75.36. 

 

Consider establishing a partial position in iShares Core US Aggregate Bond (AGG) with a Buy Limit of $101.68.

 

We would consider BND & AGG to be moderate-risk/moderate-reward. Prices for BND and AGG have historically been more volatile than SHV and SGOV.

 

Consider establishing a partial position in iShares 20+ Year Treasury Bond (TLT) with a Buy Limit of $109.10. TLT’s holdings are more concentrated than the holdings of BND or AGG and its price has historically moved in a greater range. Should the U.S. slip into a recession and interest rates decline substantially, TLT could experience an outsized price advance relative to other bond ETFs. However, should a recession be avoided, and/or inflation accelerates, TLT could test its price lows of last October if the Fed is forced to raise rates even further. TLT is likely best for aggressive traders with a higher risk tolerance.

 

Lastly, consider a position in cash and/or a money market fund. The Fed has aggressively raised rates, and options yielding 4% or more are available. An allocation to cash or a money market fund will likely be the least nerve-racking position should market volatility spike during the “Worst Months.” It also has the potential advantage of making the summer months all that much more enjoyable. 

 

Traders/investors following the Best 6 + 4-Year Cycle switching strategy detailed on page 64 of the Stock Trader’s Almanac 2023 do not need to heed this Seasonal Sell signal. However, it is still a good reminder to review existing holdings and consider a more cautious stance.

 

 

 

Sell iShares DJ Transports (IYT), SPDR Industrials (XLI), and SPDR Materials (XLB) as correlating seasonalities end in May. For tracking purposes IYT, XLI, and XLB will be closed out of the portfolio using their respective average prices on April 26.

 

All remaining holdings in the Sector Rotation Portfolio are on Hold.

 

 

Today’s Seasonal MACD Sell Signal for DJIA and S&P 500 marks the early beginning of the “Worst Six Months.” We do not simply sell and go away. Instead, today’s trades are the start of tactical adjustments that will be made in the portfolios. Between now and when NASDAQ’s Seasonal MACD Sell Signal triggers (earliest it can trigger is on June 1), the portfolios will be shifted toward a neutral stance. Positions that have historically performed well during the “Worst Months” will be held along with positions that correlate to NASDAQ and Russell 2000. 

 

All current stock and ETF holdings will be reevaluated in upcoming email Alerts. Weak or underperforming positions may be closed out, stop losses may be raised, new buying may be limited, and we will evaluate the timing of adding positions in sectors that perform well in the Worst Six Months and presenting you with a new basket of defensive stocks.

 

Continue to Hold positions associated with DJIA’s and S&P 500’s “Best Months” seasonal switching strategy. From our Seasonal Buy signal last October through today’s close, DJIA is up 11.45% and S&P 500 has gained 8.94% excluding dividends and trading fees.

 

 

As of today’s close, MACD indicators applied to DJIA, and S&P 500 remain positive, but trending toward a crossover as indicated by the falling size of the bars annotated by the arrows in the above chart. It would currently take single-day DJIA and S&P 500 declines of 568.52 points (1.68%) and 28.94 points (0.70%) respectively to turn both MACD indicators negative. As a reminder, both DJIA and S&P 500 MACD indicators must be negative to satisfy the criteria of our Seasonal Sell signal. Should S&P 500 MACD turn negative, but DJIA MACD does not, then there is no Seasonal Sell signal – or visa versa. 

 

We will issue our Seasonal MACD Sell signal via email when corresponding MACD Sell indicators applied to DJIA and S&P 500 both crossover and issue a new sell signal.

 

May officially marks the beginning of the “Worst Six Months” for the DJIA and S&P. To wit: “Sell in May and go away.” Our “Best Six Months Switching Strategy,” created in 1986, proves that there is merit to this old trader’s tale. A hypothetical $10,000 investment in the DJIA compounded to a gain of $1,132,837 for November-April in 72 years compared to just $3,422 for May-October (STA 2023, page 54). The same hypothetical $10,000 investment in the S&P 500 compounded to $906,861 for November-April in 72 years compared to a gain of just $14,918 for May-October.

 

May has been a tricky month over the years, a well-deserved reputation following the May 6, 2010 “flash crash”. It used to be part of what we once called the “May/June disaster area.” From 1965 to 1984 the S&P 500 was down during May fifteen out of twenty times. Then from 1985 through 1997 May was the best month, gaining ground every single year (13 straight gains) on the S&P, up 3.3% on average with the DJIA falling once and two NASDAQ losses. 

 

In the years since 1997, May’s performance has been erratic; DJIA up fourteen times in the past twenty-five years (four of the years had gains exceeding 4%). NASDAQ suffered five May losses in a row from 1998-2001, down –11.9% in 2000, followed by thirteen sizable gains of 2.5% or better and seven losses, the worst of which was 8.3% in 2010 followed by another substantial loss of 7.9% in 2019.

 

 

Since 1950, pre-election-year Mays rank poorly, #10 DJIA, #11 S&P 500, #8 NASDAQ, #8 Russell 1000 and #7 Russell 2000. Historically bullish pre-election forces do not consistently lift May. Four of the nine S&P 500 pre-election year May declines exceeded 4%, the worst was a 6.6% loss in 2019. Russell 2000 gained 10.6% in May 2003, notably boosting its average gain and ranking.

 

 

The first two days of May have historically traded higher, and the S&P 500 has been up 18 of the last 25 first trading days of May. Bouts of weakness often appears around or on the third, sixth, and twelfth trading days of the month while the last four or five trading days have generally enjoyed respectable gains on average. In pre-election years it has generally been better to lighten up on long positions early in May as the entire month tends to be weak (pages 42 and 44 STA 2023).

 

Monday before May monthly option expiration is much stronger than monthly expiration day itself albeit weaker for small caps. S&P 500 has registered only ten losses in the last thirty-three years on Monday. Monthly expiration day is a loser nearly across the board except for Russell 2000 with a slight average gain (+0.03%). The full week had a bullish bias that is fading in recent years with DJIA down seven weeks in a row and S&P 500 down six in a row. The week after options expiration week now tends to favor tech and small caps. NASDAQ has advanced in 23 of the last 33 weeks while Russell 2000 has risen in 26 of the last 33 with an average weekly gain of 0.91%.

 

 

 

 

Continue to Hold positions associated with DJIA’s and S&P 500’s “Best Months” seasonal switching strategy. As of today’s close, MACD indicators applied to DJIA, and S&P 500 are positive. It would currently take single-day DJIA and S&P 500 declines of 2323.25 points (6.83%) and 172.59 points (4.16%) respectively to turn MACD indicators negative. We will issue our Seasonal MACD Sell signal when corresponding MACD Sell indicators applied to DJIA and S&P 500 both crossover and issue a new sell signal.

 

 

Pre-Election Years’ “Worst Months” Historically Meager 

 

In the following table the “Worst Months” performance of DJIA, S&P 500, and NASDAQ have been separated by year of the four-year-presidential-election cycle going back to 1951 for DJIA and S&P 500 and 1971 for NASDAQ. NASDAQ’s “Worst Months” are July through October compared to May to October for DJIA and S&P 500. Even though pre-election years have historically been the best performing year of the four-year cycle, performance during the “Worst Months” has not been the least bit impressive. In 18 pre-election year “Worst Months” periods, DJIA has averaged a meager 1.14%. S&P 500 is only slightly better +1.81% while NASDAQ’s average is under 1%. Frequency of gains or percentage of time higher in pre-election years “Worst Months” is only slightly better than 50-50.

 

 

Because of the elevated level of risk that has been historically observed during the “Worst Six Months” of the year and its historically tepid returns, reducing long exposure and developing a defensive strategy is the approach taken in the Almanac Investor Stock and ETF Portfolios. We do not merely “sell in May and go away.” Instead, we take some profits, trim or outright sell underperforming stock and ETF positions, tighten stop losses and limit adding new long exposure to positions from sectors that have a demonstrated a record of outperforming during the “Worst Months” period.

 

For those with a lower risk tolerance or a desire to take a break from trading, the “Worst Months” are a great opportunity to unwind longs and move into the relative safety of cash, Treasury bonds, gold and/or some combination of traditional defensive assets. For the first time in over a decade, cash can currently earn something other than zero. Preservation of capital may be more important than growth and with historical averages and frequency of gains reduced; the “Worst Six Months” are a good time to simply step aside if you prefer. August, September and/or October have provided some excellent buying opportunities in recent years and could do the same again this year.

 

 

Over the last five weeks since the last update through yesterday’s close (April 12), S&P 500 advanced 3.1% while Russell 2000 fell 5.6%. Over the same period the entire portfolio slipped 0.9% lower, excluding dividends and any trading fees. The small-cap portion of the portfolio was hardest hit, falling 9.6%. Large-cap positions also declined on average 1.1%. Broad energy weakness in March along with bank failures resulted in six stocks being stopped out of the entire portfolio.

 

Three of the six stopped out positions were from the energy sector. Murphy Oil (MUR) was stopped out first on March 9 when it closed below its stop loss of $38.01. Epsilon Energy (EPSN) was stopped out on March 15 while Solaris Oilfield Infrastructure (SOI) was stopped out on March 17. Ample supplies and swelling fears of recession appear to have been the main drivers for the sell-off in energy in March. Supply may be cut by some OPEC members, and recession concerns have eased, but these positions have failed to meaningfully rebound. More volatility is likely in the energy sector as economic data continues to send mixed signals. 

 

Northwest Pipe (NWPX) was performing well until mid-March. Earnings were better than forecast resulting in the fourth straight quarterly beat for the company, but on the earnings call, there appears to have been some statements that called into the question the accuracy of financial statements. After reading the transcript several times, all that appears to have been accomplished was the creation of doubt and uncertainty. Two attributes no investor wants. Given the relatively thin average daily trading volume, shares quickly sank below the stop loss.

 

Fabrinet (FN) was also stopped out in mid-March. FN enjoyed solid price gains in Q4 of last year, but peaked in early January and has been slipping since. Analyst opinions vary greatly with a mix of upgrades and downgrades already this year. Shares are down under $100 today while the major index log gains. FN may be worth another look if it can find support and stop declining. Until then we will avoid it.

 

Lastly, Steel Dynamics (STLD) was also stopped out in March. Recession concerns and weakening commodity prices appear to be driving recent declines from STLD’s early March highs. Currently, STLD’s earnings are forecast to have declined in Q1.

 

On a bullish note, Perion Network (PERI) continues to trend higher and is up over 55% since being added to the Mid-Cap portfolio last November. PERI traded at another new 52-week high last week and is closing in on its old all-time high from nearly a decade ago. Continue to Hold PERI.

 

All positions not previously mentioned are on Hold. Better than anticipated inflation metrics are giving stocks a boost now, but what the Fed does next with interest rates remains uncertain and the risk of them overtightening is as high as it has ever been during the current cycle.

 

 

 

If you were unable to attend Monday’s member’s only webinar, 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 reiterated our overall bullish stance for the year, but also expressed concern for the potential for another 2011 federal debt ceiling showdown this year and how this upcoming “Worst Months” could be similarly filled with volatility. In 2011, S&P 500 topped on April 29 and shed 19.4% through October 3 mainly over fears of a possible U.S. default.

 

 

As a reminder the criteria to issue our Seasonal MACD Sell signal for DJIA and S&P 500 is a new sell signal after the first trading day of April and both DJIA and S&P 500 have to agree. The confirmation by both DJIA and S&P 500 is part of the criteria. For example, if DJIA’s Seasonal MACD indicator turns negative, but S&P 500’s does not, then there is no signal on that day. Both must be negative. Our Seasonal MACD Sell indicator is calculated using daily closing prices with a short exponential moving average (ema) of 12, a long ema of 26 and a 9-period ema for the signal line. This is frequently written as 12-26-9.

 

As of today’s close, MACD indicators applied to DJIA and S&P 500 remain positive. DJIA would need to drop over 2640 points (7.89%) in a single day to turn its MACD indicator negative while S&P 500 would need to decline over 254 points (6.19%) to turn its MACD indicator negative. Continue to hold long positions associated with DJIA’s and S&P 500’s “Best Six Months.” We will issue our Seasonal MACD Sell signal when corresponding MACD Sell indicators applied to DJIA and S&P 500 both crossover and issue a new sell signal.

 

 

 

Despite finishing March with respectable gains, the mini banking crisis did some damage to some positions in the portfolio. The first position to be stopped out was SPDR Financial (XLF) on March 13. XLF’s stop loss at $31.90 resulted in a modest 2.6% gain excluding dividends and any trading costs.

 

As bank concerns and recession fears rapidly ballooned in mid-March, SPDR Energy (XLE) was also stopped out. The timing of this stop was poor as OPEC was quick to respond to falling energy prices with the announcement of supply cuts earlier this week. XLE has rebounded but is still below our original entry price from late last year. Between the upcoming summer driving season, the need to replenish the Strategic Petroleum Reserve, geopolitical uncertainty, and a less than favorable domestic regulatory outlook, it remains challenging to see crude oil making any move other than higher in the near-term. But much of that move may have already been realized so we are going to pass on jumping back into XLE now.

 

Vanguard REIT (VNQ) was also stopped out in March at $79.94 for a 2.5% gain excluding dividends and fees. VNQ had been slipping since the start of February on the expectation of higher interest rates. Banking uncertainty accelerated the decline, and its bounce back has been muted.

 

On a brighter note, broad technology strength so far this year has translated into solid gains from SPDR Technology (XLK) and iShares US Technology (IYW), up 21.7% and 20.9% respectively as of the close on April 5. The resurgence of tech in March is encouraging as it aligned well with historical seasonal patterns. XLK and IYW are on Hold.

 

All other positions in the portfolio not previously mentioned are currently on Hold.

 

 

 

As of yesterday’s close, the Tactical Seasonal Switching Strategy portfolio had an average gain of 8.2%. Invesco QQQ (QQQ) is now the top performing position in the portfolio up 13.0% as of April 5 close. SPDR DJIA (DIA) is the second-best position up 11.0% while SPDR S&P 500 (SPY) was up 8.6%. iShares Russell 2000 (IWM) has slid all the way back to essentially breakeven after leading in March’s update. All four positions are on Hold.

 

In preparation for the upcoming “Worst Months,” three bond ETFs appear in the table below. AGG and BND are multi-duration bond ETFs and are generally less volatile than TLT. With money markets and CD’s yielding something other than basically zero for the first time in over a decade, cash is a good option to consider as well for the upcoming “Worst months.” When the Seasonal MACD Signal for DJIA and S&P 500 triggers we will look to move into some combination of these bond ETFs and cash.

 

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 outlined on page 64 of the 2023 Almanac that holds these positions throughout pre-election and election years.