Please take a moment and register for our member’s only webinar, May 2024 Outlook and Update on Wednesday May 1, 2024, at 4:00 PM EDT here:

 

https://attendee.gotowebinar.com/register/7931910306927272023  

 

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 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, “Best Months,” the election 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.

 

 

4/25/2024: Dow 38085.80 | S&P 5048.42 | NASDAQ 15611.76 | Russell 2K 1981.12 | NYSE 17731.56 | Value Line Arith 10009.57

 

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 election years, May has been tepid ranking #9 for DJIA and S&P 500 since 1950, #8 for NASDAQ and Russell 2000. Average election year May performance ranges from –0.4% by DJIA to +0.6% from Russell 2000.

 

Fundamental: Mixed. Advance estimate for Q1 GDP came in well below estimates at just 1.6% while associated inflation metrics were hotter than expected. Advance GDP estimates are often revised so Q1 may not have been as weak as first reported. Nonetheless, this was a significant slowdown compared to the second half of 2023. Corporate earnings have been choppy with some misses and disappointing guidance, but not a total wash. Employment data continues to hold up with weekly initial claims holding right around 200,000. Tepid growth and lingering inflation have not been a historically good combination for the market.

 

Technical: Pullback. From their closing highs through closing lows, DJIA, S&P 500 and NASDAQ have declined 5.2%, 5.5% and 7.1% respectively. All three are currently trading below their 50-day moving averages, but also remain above their key 200-day moving averages. The rally that started earlier this week is taking a hit today, but the recent lows appear to be holding. Should the rally resume, 50-day moving averages could be resistance while the 200-day moving averages are key support levels.

 

Monetary: 5.25 – 5.50%. Next week the Fed will meet again, and they are expected to leave rates unchanged. According to the CME Group’s FedWatch Tool, the first month to have a chance of a rate cut over 50% is currently September. Based upon recent inflation data, even September still seems somewhat optimistic. 

 

Sentiment: Retreating. According to Investor’s Intelligence Advisors Sentiment survey Bullish advisors stand at 46.2%. Correction advisors are at 32.3% while Bearish advisors numbered 21.5% as of their April 24 release. Bullish sentiment has fallen after holding above 50% since mid-January but is neutral at best at or near current levels.

 

When our Best Six Months (BSM) MACD Seasonal Sell Signal triggered on April 2, we thought it might be a bit early. But in hindsight, so far it appears to have turned out to be rather timely. After five solid up months in a row and BSM gains that were double the historic average we expected a rally respite was imminent. With S&P 500 down -5.5% from the March 28 closing high to the April 19 closing low the pullback in the 3-6% range we were expecting has transpired. We suspect the pullback is not over and at a bare minimum we could see more chop over the next several months fueled by headlines, higher rates, inflation data and technicals.

 

We have refined the Election Year Seasonality Pattern with just the Top Q1 Election Years and All Election Years compared to 2024 in the chart below. The chart underscores the market’s tendency to be weaker in April and May after big Q1 gains in election years. S&P has rallied about 2% off the lows the past 3 sessions, NASDAQ has rallied a little more. If you look closely at the green line on the chart there is some late-April strength that succumbs to more weakness in May before the market gets its election year footing for the bullish last seven months of election years.

 

 

 

With only a few days left in April 2024, it seems apparent it will be a down month, the first one in 6 months. Almanac readers know April is the best Dow month by average percent change and #2 for S&P. It’s ranked fourth for average percent change on NASDAQ and Russell 2000. In general, April is a solidly bullish market month overall with a high average percent and plurality of gains across the board. So a negative April is cause for concern. When the #1 Dow month is down that could be significant. 

 

Digging into the data in the tables below of all down Aprils since 1950 there is a plethora of red in May and through Q2 and Q3. There are several steep drops scattered throughout these 21 down April years. May, Q2 and Q3 show consistent and average losses. Q4 however delivered solid gains except for three years: 1973 (Watergate, Vietnam, Oil Embargo), 1987 (Crash) and 2000 (Undecided Election). You can see why we expect the market to struggle for the next several months.

 

 

Considering the banner Q1 we had in 2024 we broke the stats down by down Aprils after a positive Q1 in the next table. There is a marked improvement, but weakness during the Worst Six Months remains prevalent and last-8-month losses loom large in 1956 (Ike Recession), 1981 (Double-Dip Recession), 1987 (Crash) and 2000 (Dotcom Bubble).

 

 

Lastly, since 2024 is an election year we trimmed the list to only election years with down Aprils. Stocks still struggle through Q2 and Q3 in these years. Q4 and the last 8 months are stronger overall but not without significant damage in 1956, 1960, 2000 and 2012. Sitting presidents were running for reelection in 1956 and 2012 whereas 1960 and 2000 were open fields. No matter how we slice it after the big 5-month and Q1 gains we’ve had and the looming April loss, the market is going to be hard pressed to deliver much upside until Q4.

 

 

 

As the correction gathers some momentum here let’s turn to one of our longer-term technical charts back to 2022. We’ve left the legacy support and resistance lines and notations that have been on this chart over the past two years. Pink circles and a new note have been added to highlight the old 4800 resistance level at the January 2022 high, which we broke through in January 2024. This old 4800 resistance level now serves as support. A move to this level would be an 8.6% pullback from the closing high and 8.8% from the intraday high. Below 4800 there is support around 4700 near the 200-day moving average (blue line) and the January low which would be a 10% correction. Then there’s 4600 at last summer’s highs which would constitute a 12.5% correction. 

 

Considering how far the market has come since the October 2023 lows and even the 2022 bear market lows, a correction of these magnitudes should not come as a surprise. Today’s selling on the worse than expected GDP, inflation data, and Magnificent Seven weak guidance may look dire at first blush, but it’s not as severe as the fear mongers want you to believe. The market and these high-flying stocks clearly got ahead of themselves, and this is a retreat to more reasonable levels. 

 

 

 

This morning’s GDP report has whipped up stagflation fears on The Street. GDP came in at 1.6% for Q1, well below expectations of 2.4%. But remember this is the “advance” reading and will be revised two more times. Also contained in this report is a quarterly measure of personal consumption expenditures (PCE). This is NOT the Fed’s “preferred measure of inflation," which comes out tomorrow. This is a quarterly measure, the “implicit price deflator,” that has also been annualized. When it was softer everyone was raving about inflation coming down and the Fed cutting early and often. So, today’s reaction to GDP and inflation is likely kneejerk and overdone. Though it has stoked the stagflation fears and spooked the market.

 

 

While the market is clearly in a corrective phase let’s remember that we have already shifted to a cautious stance following our April 2 Best Six Months Seasonal MACD Sell Signal. We have taken some profits, shifted neutral, tightened up stops and are limiting new longs. Our NASDAQ Best 8 Months Seasonal MACD Sell Signal that can occur on/after June 3 (first trading day of June this year) will be the next “scheduled” portfolio adjustment. However, if current volatility is testing your nerves, it is acceptable to consider taking additional profits by lightening up on remaining long positions. 

 

In the meantime, keep an eye on the 10-yr Treasury yield. If it continues to trend higher, pushing mortgage rates higher, it could test the highs of last year which could push the market into correction (down 10%+). This will all depend on incoming inflation and economic data. Although one can never be certain, it sure looks like we will have a presidential election rematch of Trump v. Biden. Both are known entities and the last 7 or 8 months of election years have historically been bullish.

 

 

Three days after issuing our Seasonal Sell Signal for DJIA and S&P 500, DJIA fell below its 50-day moving average for the first time since last November (1). DJIA’s rally earlier this week brought DJIA back near its 50-day moving average, but that rally has proved short-lived. DJIA is now trading in the wide gap between its 50- and 200-day moving averages. Some support could be found around DJIA 37,700 right around last year’s highs and April’s lows set last week. Should this support break, then the next key level is the 200-day moving average currently around 36,300. 

 

After hastily retreating throughout most of April, both the faster and slower moving MACD indicators applied to DJIA made a quick turn higher earlier this week (2). The faster moving “buy” indicator did turn positive on Tuesday, but the slower moving indicator remains negative with its April 2, sell signal still holding.

 

 

Since the first full week of trading in March (week ending on the 8th), DJIA has declined five times in eight weeks (3) and suffered two Down Friday/Down Monday (DF/DM) occurrences. March’s DF/DM will initially quickly shrugged off by DJIA as it soon rallied to new all-time highs. April’s DF/DM was also followed by some DJIA strength, but S&P 500 and NASDAQ recorded significant weekly losses. S&P 500 (4) was down in five of the last seven weeks while NASDAQ (5) has fallen in six of the last seven weeks. Last week’s 5.5% NASDAQ loss was its worst weekly decline since early November 2022.

 

Market breadth over the last three weeks has been decisively negative. NYSE Weekly Decliners (6) have outnumbered Weekly Advancers by over 2 to 1 in each of the last three weeks. Selling has been widespread and weekly stats do not currently show any indication that the pullback is over. At a minimum a relatively quiet week with mixed breadth could be an early sign that selling pressure could be waning.

 

Weekly New Highs and New Lows have been similarly dreary as market breadth over the past few weeks. Weekly new highs have collapsed from a high of 590 in the second half of March to just 45 last week (7) while Weekly New Lows have ballooned from 49 during the final week of March to 173 last week. Look for a plateau and/or a decline in New Weekly Lows as a possible sign the pullback has run its course.

 

Inflation and federal deficit spending have continued to weigh on longer-term Treasury yields. In addition to the 10-year Treasury bond yield, the 30-year Treasury bond yield (8) has moved higher and is closing in on 5% again. The last run toward 5% occurred when stocks last corrected during August to October 2023. Last year’s high yields could be tested, but likely will not be broken. Inflation has been warmer than expected as its pace of retreat has slowed, but it is also not surging higher like it did in 2021 and the first half of 2022.

 

 

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 $1,180,836 for November-April in 73 years compared to just $3,323 for May-October (STA 2024, page 54). The same hypothetical $10,000 investment in the S&P 500 compounded to $977,443 for November-April in 73 years compared to a gain of just $13,335 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 NASDAQ suffering two losses. 

 

In the years since 1997, May’s performance has been erratic; DJIA up fourteen times in the past twenty-six 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 fourteen 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, election-year Mays rank rather poorly, #9 DJIA and S&P 500, #8 NASDAQ and Russell 2000 and #7 Russell 1000. Average performance in election years has also been weak ranging from a 0.4% DJIA loss to a 0.6% gain by Russell 2000. Aside from DJIA, the frequency of gains in election year Mays is bullish, but down Mays have tended to be big losers. In 2012, DJIA, S&P 500, NASDAQ, Russell 1000 and 2000 all declined more than 6%. 

 

 

Over the last 21 years, the first three days of May have historically traded higher, and the S&P 500 has been up 18 of the last 26 first trading days of May. Bouts of weakness often appear around or on the fourth, sixth/seventh, and twelfth trading days of the month while the last four or five trading days have generally enjoyed respectable gains on average, but the last day of May has weakened noticeably with only NASDAQ gaining ground. 

 

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-four years on Monday. Monthly expiration day is a loser nearly across the board except for Russell 2000 with a slight average gain (+0.01%). The full week had a bullish bias that is fading in recent years with DJIA down seven of the last eight and S&P 500 down six of the last seven. The week after options expiration week now tends to favor tech and small caps. NASDAQ has advanced in 24 of the last 34 weeks while Russell 2000 has risen in 26 of the last 34 with an average weekly gain of 0.88%.

 

 

 

Back in 2010 when we made this bold forecast, we got a lot of flak. But once folks examined the analysis, history, and math they realized it was quite plausible based on market history and inflation, but almost everyone was still dubious. In 1976 our illustrious founder the late, great Yale Hirsch discovered this amazing perennial pattern and phenomenon was based on how exorbitant government spending creates high inflation and how the subsequent decline in purchasing power of the dollar drives the market to incredulous new heights.

 

The cycle is based on previous moves following WWI, WWII and Vietnam and the associated inflation caused by massive government spending. Sound familiar? The other factor in our Super Boom equation is technology, what we call “culturally enabling, paradigm-shifting technology.” Ubiquitous technology that ramps up human productivity exponentially like the microprocessor, indoor plumbing, the automobile, refrigeration/air-conditioning, air travel, etc. Things that impact the world collectively and change people’s lives individually.

 

Our study of the current manifestation of this amazing long-term cycle began back in the December 2004 edition of this newsletter in a piece on page 8 entitled, “Proving Grounds: War and Peace”. It was the first of a three-part series culminating in the February 2005 issue where we imparted Yale’s calculus from his seminal April 1976 newsletter article entitled: Stocks Catch Up With Inflation Eventually — 500% Moves After Both WW1 & WW2 — Can It Happen Again? Dow 3420? The point being that the market is bound to make these huge moves over time “just to keep up with inflation.”

 

It wasn’t until May 2010 as we were preparing the 2011 Almanac that this 500% Move Super Boom forecast crystallized. With the depths of the Great Financial Crisis in the rearview mirror it became clear to us that the 2009 bottom correlated almost perfectly with the secular bear market lows Yale identified in 1921 (WWI), 1942 (WWII) and 1974 (Vietnam). At that point we realized we were likely at the beginning of the next 500+% move secular bull market. Published in mid-May 2010 “Next Super Boom – Dow 38820 By 2025 – Stocks Catch Up With Inflation, But First Inflation Catches Up With Government Spending” appears on page 10 of the June 2010 newsletter archive.

 

We’ve learned a great deal about this cycle over the past 20 years. The financial, economic, political, technology, and media landscapes have changed quite a bit, but humans are still creatures of habit as are the machines and tech they invent. Governments still throw massive amounts of money at major crises like war and pandemics and that creates inflation that stocks inevitably catch up with.

 

Now that the market has achieved our monumental prediction, it begs the question: What’s next? We will continue to examine and analyze this Super Boom Cycle and the prospects for the longer-term trajectory of the market and inflation and the evolution of the new culturally enabling, paradigm-shifting AI technology.

 

At this juncture, it appears to us that we are in the early stages of AI, somewhere in the third, fourth or fifth inning, perhaps even the first inning. It’s reminiscent of the early days of the transition from MS-DOS to Microsoft Windows in the early 1990s. The microprocessor which first came to market in the early 1970s and scaled up in the early 1980s as the last secular bull took off in 1982 led to this operating system software innovation. MS-DOS came out in 1981 and Windows first came out in 1985. Between 1992 and 1995 when Windows 3.1 and 95 were released is when it “got real.”

 

(Please forgive the broad strokes here. There were a plethora of other innovators and companies that drove that tech boom just as there will be many to profit from in the current boom.)

 

When Jeff started full-time at the firm in 1989 one of his first orders of business was to convert all the paper calculations for the Almanac to Excel for DOS. Then he transitioned to Windows 1995. When Chris came on the scene over 20 years ago, he built our own proprietary software.

 

By our current estimation we surmise that AI technology is somewhere in the area of the early Windows years from 1992-1995 and that this secular bull and Super Boom has many years to run. Yes, there will likely be at least one cyclical bear market and recession during this period, perhaps even as early as 2025 or 2026, but that is a discussion for another time and study.

 

Wall Street’s CEO Jamie Dimon himself said it the other day that AI’s impact could be as “transformational as some of the major technological inventions of the past several hundred years: Think the printing press, the steam engine, electricity, computing and the Internet.” AI clearly appears to be the kind of technology that ignites a generational innovation and productivity boom. We believe AI will fuel the economy and the market to even loftier highs before the current secular bull market ends.

 

 

Based upon the Super Boom pattern, completed three times in the 20th century, the next target for Dow is 62430. How long it will take to reach this level will likely depend on when the current inflationary period cools to be in line with recent historic norms of around 2%. However, based upon the 10% per year average gain since 2009, Dow could reach this lofty level by 2030.

 

Before dismissing this lofty target as insanity, let’s do a quick review. From the familiar chart above, note the historical periods of war, the shaded rectangular areas of Dow consolidation, and the corresponding surges in inflation. To be clear the periods of war are times when the U.S. military is engaged on foreign shores with a major deployment of boots on the ground, not to be confused with the current conflicts where the U.S. military is in theater. When Yale discovered and published the Super Boom pattern in April 1976, he observed the 500% moves based upon the final bear market low of the shaded consolidation areas, the “launching pads” for the massive bull gains. 

 

Yale’s forecast for a 500% move at that time used Dow’s 1974 low as the starting point. From that low Dow crossed 3420 on May 20, 1992, and kept going for another eight years. With the benefit of hindsight, we now know that the end of that launch pad was in August 1982 when inflation finally retreated. From its intraday low on August 11, 1982, at 770 the Dow climbed 1447% to its intraday high of 11908.50 on January 14, 2000. From the low in 1974, which Yale based his forecast on, to its 2000 closing high, Dow gained a staggering 1957%.

 

Fast forward to 2010 when we made the call for Dow 38820 by 2025. The secular bear was still in control and the market was recovering from the financial crisis of 2008-09 and we based our call on the 2009 bear market low. Once again, with the benefit of hindsight the secular bear and launching pad for the current Super Boom was not completed until 2013 when Dow broke out to new all-time highs and never looked back. The final mini bear bottomed on October 3, 2011, at Dow 10655.30. A 500% move from the intraday low on October 4, 2011, of 10405 takes Dow to 62430. From Dow’s recent all-time high of 39807.37 on March 28, to 62430 it is a 56.8% gain. As crazy and far-fetched as this may sound, the Dow gained over 114% from its March 2020 low to it most recent all-time high.

 

Our 2010 call for a 500% move by 2025 has been completed, but the Super Boom pattern suggests there is still more upside yet to come. The current secular bull market continues with AI most likely being the next paradigm-shifting, culturally enabling technology that propels the economy and market to new highs. To be clear, this is the market’s long-term trajectory based upon the Super Boom pattern. The market will not go straight up, there will still be pullbacks, corrections and even a mild bear along the way. In the near-term we stand by our current cautious stance with modest weakness expected during the historically tepid “Worst Months” as the market comes to terms with inflation, interest rates and a presidential election.

 

As of today’s close, only NASDAQ is positive this April with a paltry 0.38% advance. The second best is S&P 500, down the least, off 1.05%. DJIA and Russell 2000 are struggling the most, down 3.39% and 3.86% respectively. This poor April performance is well below average and even weaker than past election year Aprils. Inflation remains a top concern for the market and this week’s readings did not support the argument for rate cuts sooner rather than later.

 

 

Past election-year Aprils have gotten off to tepid starts and managed to recover with modest gains so it would not be completely out of the question to see a repeat of that this year. However, given the recent choppiness of trading and the surge in longer-term Treasury bond yields, an April letdown is appearing increasingly likely. With our Seasonal MACD Sell signal for DJIA and S&P 500 already triggered, we have already taken some profits and begun moving to a more cautious stance.

 

 

Over the past four weeks through yesterday’s close (April 10), S&P 500 slipped 0.1% lower while Russell 2000 shed 2.1%. Over the same period the entire stock portfolio declined 3.3% excluding dividends, any interest on cash and any trading fees. Declines occurred across all three market cap ranges with Mid-caps logging the largest retreat, down 9.5%. Large caps fared best, slipping a modest 0.1% lower.

 

Over 80% of the entire portfolio’s decline was due to Super Micro Computer (SMCI). In last month’s update, SMCI was at its all-time closing high and was the second largest holding in the entire portfolio after cash. SMCI has cooled since then and was just over $900 per share at yesterday’s close compared to nearly $1200 last update. Even though we have already sold half of the original position in SMCI, we are going to take some additional profits off the table and bring SMCI’s weighting in the portfolio down. Sell half of the remaining position in SMCI. For tracking purposes, we will use SMCI’s average price on April 12 for this transaction. SMCI will still be overweight in the portfolio relative to other positions, but this is consistent with our outlook for AI.

 

Mama’s Creations (MAMA) was another drag on overall performance. MAMA has been trending higher since late 2022. The current pullback has not damaged this bullish trend. MAMA’s chart is a series of higher highs and higher lows. Technically, a healthy pattern that usually results in higher prices until support is broken. MAMA is also a member of the consumer defensive sector which has historically held up well during the “Worst Months” of the year, May through October. MAMA is on Hold.

 

Further damage was done to the portfolio on April 2, when the government announced payments for Medicare Advantage insurers were going to be less than widely expected. The news sent UnitedHealth (UNH) shares tumbling below their stop loss. UNH was closed out the following day for a 13% loss. UNH declined again today and remains below the price it was stopped out at.

 

Two stocks of concern are Frontdoor (FTDR) and Grand Canyon Ed (LOPE). After modest gains late last year, both have struggled in 2024. FTDR is likely being dragged down by the tepid housing sector where affordability remains a major issue while LOPE has struggled to move beyond FTC and Department of Education lawsuits and investigations. FTDR and LOPE are on Hold.

 

There were also some positives in the portfolio. Large caps Reliance Steel & Aluminum (RS), Emcor Group (EME), and nVent Electric (NVT) all moved nicely higher over the last four weeks. The average gain for these three positions is now 60.3% with RS best at 67.5%. RS and EME are benefiting from infrastructure spending while NVT appears to be tapping into AI buildup and rollout. RS, EME and NVT are on Hold.

 

All remaining positions not mentioned above are on Hold. Please see table below for updated stop losses.

 

 

For those who were unable to attend the member’s only webinar on Wednesday, the slides and video recording with an auto generated transcript are available here (or copy and paste in a new browser window: https://www.stocktradersalmanac.com/LandingPages/webinar-archive.aspx). With the Seasonal MACD Sell signal for DJIA and S&P 500 triggering on the prior day, Jeff focused on the transition the portfolios will be undergoing in anticipation of the “Worst Months” along with a recap of the major seasonal patterns that we have been following recently.

 

In closing Jeff reiterated that we remain bullish for the full year, but with bullish sentiment soaring to multi-year highs, sizable “Best Months” gains in the portfolio, and a Fed that does not appear to be in any hurry to reduce rates, that the market appears vulnerable to some profit taking and even a mild pullback in the near-term.

 

 

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. In 18 election year “Worst Months” periods, DJIA has averaged a meager 0.68%. S&P 500 is modestly better +2.28% while NASDAQ’s average is under just 0.49%. Frequency of gains or percentage of time higher in election years “Worst Months” ranging from 61.1% by DJIA to 77.8% for S&P 500.

 

Despite gains occurring frequently in election year “Worst Months,” average performance for either a four- or six-month period is rather disappointing. Of the 18 election years, only two produced double-digit gains, 1980 and 2020. In 1980 a mild bear ended on April 21 and in 2020 the pandemic induced bear market bottomed on March 23. This year has been the exact opposite with five straight months of gains and well-above average gains in Q1. Two wars raging, elevated geopolitical tensions, an uncertain Fed as inflation’s retreat slows, and a volatile presidential election. Overall risk is high while historically the reward has been lackluster during the “Worst Months.”

 

 

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 we are taking 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. This week’s Seasonal MACD Sell Signal for DJIA and S&P 500 marks the start of a transition to a more cautious stance.

 

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. Holding cash finally earns something other than zero. Preservation of capital may be more important than growth; 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.

 

 

In accordance with Tuesday’s Seasonal MACD Sell signal email Issue, SPDR Health Care (XLV), iShares DJ Transports (IYT), SPDR Industrials (XLI), SPDR Materials (XLB) and Vanguard REIT (VNQ) have been closed out of the portfolio using their average prices on April 3. The average gain across these five positions was 16.3% excluding dividends and trading costs. The largest gain was 21.3% by XLI while VNQ produced the smallest advance at 11.0%. All five of these ETFs are correlated to Sectors that end their historically favorable period in May. In addition to the seasonal factors, a rising crude oil price has historically been a negative on Transports, and to a lesser degree Industrials and Materials. Rate uncertainty and a rising 10-year Treasury yield was also weighing on Real Estate while parts of the Healthcare sector were hit earlier this week with disappointing Medicare Advantage plan payments.

 

Crude oil hitting a 6-month high is supporting SPDR Energy (XLE). Summer driving season is just around the corner which suggests demand will be rising while geopolitical events are escalating fears of supply disruption. XLE was up 19.5% at the close on April 3, and is closing in on its auto-sell price of $99.91. Officially, we will heed our policy if that price is reached, but as an alternative to outright selling, one could utilize a trailing stop approach.

 

Despite the struggles of natural gas, First Trust Natural Gas (FCG) is performing even better, up 24.5%. FCG’s holdings provide a fair amount of exposure to crude oil. As long as crude oil is climbing FCG is also likely to continue to rise. Should it reach its auto-sell price, it could be handled like XLE.

 

Except for SPDR Utilities (XLU), all positions in the Sector Rotation portfolio are on hold. Please note that some stop losses have been updated to account for gains since the last update.

 

 

 

In accordance with Tuesday’s Seasonal MACD Sell signal email Issue, SPDR DJIA (DIA) and SPDR S&P 500 (SPY) have been closed out of the portfolio using their respective average prices from April 3. DIA was sold for a 16.0% gain and S&P 500 had a 19.4% advance, excluding dividends and any trading costs. NASDAQ’s Seasonal MACD Sell signal has not triggered. Invesco QQQ (QQQ) and iShares Russell 2000 (IWM) are on Hold. From now until sometime on or after June 3, 2024, the earliest date that NASDAQ’s Seasonal MACD can trigger, we will be transitioning to a more cautious stance in the portfolios.

 

Part of this transition is reducing exposure to DJIA and S&P 500 correlated holdings and moving into bond ETFs, cash, and money market funds. Accordingly, we have added positions in TLT, AGG, BND, SHV, and SGOV to the portfolio as detailed in Tuesday’s Seasonal MACD Sell email. SHV and SGOV can be considered at current levels. TLT, AGG, and BND have exposure to long-dated Treasury bonds that have historically exhibited more price volatility than short-dated funds such as SHV and SGOV. Should economic data support the Fed cutting rates in June, TLT, AGG, and BND could enjoy solid price appreciation, but if the Fed is forced to delay reducing rates, and/or if inflation and growth accelerate, they could easily suffer losses. Due to this uncertainty, SHV and SGOV are currently our preferred bond ETFs.

 

As a reminder, traders/investors following the Best 6 + 4-Year Cycle switching strategy detailed on page 64 of the Stock Trader’s Almanac 2024 do not need to heed this Seasonal MACD Sell signal for DJIA and S&P 500. However, it is still a good reminder to review existing holdings and consider a cautious stance.

 

 

 

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 3. 

 

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

 

Once again for this “Worst Months” period we are going to present some low-fee ETFs where cash from the positions that are being closed out can be used 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 $110.15. 

 

Consider establishing a partial position in iShares 0-3 Month Treasury Bond (SGOV) with a Buy Limit of $100.35.

 

Although we would consider SHV and SGOV to be low-risk/low-reward options given their relatively stable prices, they have respectable yields. With longer dated Treasury bond yields creeping higher and uncertainty as to when the Fed may begin reducing rates, our preferred funds are SHV and SGOV at this time.

 

Consider establishing a partial position in Vanguard Total Bond Market (BND) with a Buy Limit of $71.65. 

 

Consider establishing a partial position in iShares Core US Aggregate Bond (AGG) with a Buy Limit of $96.65.

 

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 $91.50. TLT’s holdings are more concentrated than the holdings of BND or AGG and its price has historically moved in a greater range. Should long-dated interest rates decline substantially, TLT could experience an outsized price advance relative to other bond ETFs. However, should inflation accelerate and the Fed delays lowering rates, TLT could slide lower. TLT is likely best for aggressive traders with a higher risk tolerance.

 

Lastly, consider a position in cash and/or a money market fund. Options yielding 4% and more are widely 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 2024 do not need to heed this Seasonal Sell signal. However, it is still a good reminder to review existing holdings and consider a cautious stance.

 

 

 

Sell SPDR Health Care (XLV), iShares DJ Transports (IYT), SPDR Industrials (XLI), SPDR Materials (XLB) and Vanguard REIT (VNQ) as correlating seasonalities end in May. For tracking purposes XLV, IYT, XLI, XLB and VNQ will be closed out of the portfolio using their respective average prices on April 3.

 

SPDR Financial (XLF) and Global X Copper Miners (COPX) were sold when they traded above their respective auto-sell prices in March. iShares Biotech (IBB) was sold in accordance with last month’s update.

 

SPDR Utilities (XLU) was added to the portfolio on March 12 when it traded below its buy limit. XLU can still be considered on dips.

 

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 3 this year), 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.