June 2016 Trading & Investment Strategy
May 31, 2016
Market at a Glance - 5/31/2016
By: Christopher Mistal
May 31, 2016
5/27/2016: Dow 17873.22 | S&P 2099.06 | NASDAQ 4933.50 | Russell 2K 1150.45 | NYSE 10469.52 | Value Line Arith 4658.45
Psychological: Muddled. According to the most recent Investor’s Intelligence Advisor Sentiment survey, bearish advisors ticked up to 24.0%. Correction advisors stand at 40.6% and Bullish advisors are just 35.4%. However, this reading was from before last week’s advance. Last week’s CBOE Put/Call ratio hit its lowest level since December which indicates a higher level of bullish sentiment than Advisor Sentiment suggested. Lacking clarity, the market will likely continue to bounce around in a range as neither bulls nor bears can seem to maintain control for any extended period of time.
Fundamental: Mixed. The labor market remains on seemingly firm ground although weekly initial jobless claims have climbed recently. Q1 GDP was revised higher and consumer spending picked up at the fastest pace in six years in April. Corporate profits, ex-energy were better than expected in Q1 however, they did decline from year-ago levels. U.S. stocks are still within a few percentage points of all-time highs. But Q2 growth is still expected to be a tepid 2.9% and the Fed has its finger on the rate-hike button.
Technical: Range bound? After failing at resistance below last year’s all-time highs in April, DJIA and S&P 500 tested their April lows and bounced. S&P 500 was first to return to resistance around 2100 and stall. DJIA’s bounce was subdued and still has some upside potential before it hits resistance. NASDAQ has not even reached its highs from last December and continues to lag. A break of May’s lows could lead to a retest of January/February lows while a breakout by DJIA and S&P 500 and NASDAQ is needed to snap the market out of its year-plus funk.  
Monetary: 0.25-0.50%. Seemingly over optimistic rate-hike expectations have been called into question with Fed minutes and officials frequently citing June is “on the table” in recent weeks. As a result the dollar has firmed and gold and Treasury bonds have weakened. Notions of the Fed waiting until after elections in November are also unfounded. The Fed has increased rates in the past ahead of elections.
Seasonal: Neutral. June is the last month of NASDAQ’s “Best Eight Months.” NASDAQ’s Seasonal MACD Sell signal can occur as soon as June 1. In election years, June performance does improve. June is the #1 S&P 500 month in election years, #4 DJIA and NASDAQ, #5 Russell 2000.
June Outlook: New Highs Elude End of NASDAQ Best 8 Months
By: Jeffrey Hirsch & Christopher Mistal
May 31, 2016
Political, economic, fundamental and technical crosscurrents continue to plague the stock market. On the positive bullish side of things the Dow and S&P have posted gains for the first five months of this election year. In election years when the first five months have been positive it has been an indication that the incumbent party retains the White House. And when the incumbent party stays in power the market has performed better for the full year.
Hence we can deduce that the market expects Hilary Clinton to win and that will be just fine, because it will mean a likely continuation of the same or similar policies and agenda as under the Obama administration, providing a greater degree of certainty as to what to expect from Washington. With Donald Trump as a political newcomer, running an unpredictable campaign, Wall Street can’t possibly have a clue as to what a Trump administration would do and mean for the market.
If Trump begins to gain traction and the Clinton and Sanders continue to divide the Democratic Party, the market may falter in fear of an uncertain and unpredictable presidency. Today’s sell off, though intraday losses were pared, is an illustration of how fragile this bull is. This very volatile May is up for the month across the board, ending on a less the stellar note and NASDAQ remains in the red for the year.
With economic data and corporate results mixed, and the presidential campaign resembling something of a daytime talk show, the inability of the market to log new highs and struggle to gather momentum technically at the outset of the end of the Best 8 Months is quite a bit disconcerting. The longer we go without making a new high the greater the chance of a deeper decline.
Pulse of the Market
As of last Friday’s close, both the faster and slower moving MACD indicators applied to DJIA were positive (1) after spending the previous five weeks negative. The same indicators applied to NASDAQ were also positive and it would take a massive 380 point (7.7%) single-day drop to turn them negative. June 1 is the earliest we can issue our Tactical Seasonal Switching Strategy MACD Sell for NASDAQ. Based upon that sizable one-day loss, this will most likely not happen on the first trading day of June.
For the first time since February, DJIA slipped below its 50-day moving average (2) (solid black line) in May. A frequently considered bullish “golden” cross, defined as when the 50-day moving averages rises above the 200-day moving average, appeared on DJIA’s chart just as it stalled out just below its previous all-time high in mid-April. Aside from last week, this “golden” cross was followed by four straight weeks of DJIA losses (3).
Dow Jones Industrials & MACD Chart
Since the start of April, DJIA has been down in five of the last nine weeks (3). In this same time period, DJIA’s performance on Fridays and Mondays has been a seesaw battle between bulls and bears. Neither has gained and held an advantage as an up Friday was followed by a down Monday and vice versa (4). Over the same period S&P 500 and NASDAQ have fared about the same a DJIA. NASDAQ (6) has five declines in nine weeks; S&P 500 (5) has one less decline.
Other than end ending May 20th, NYSE Weekly Advancers and Weekly Decliners (7) have behaved as expected. Decliners did outnumber Advancers that week even as S&P 500 and NASDAQ posted weekly gains. The steady rise in New 52-week Highs in late-April and early-May was most likely the result of strength in precious metals and energy as major indices actual posted losses. Both New Highs and Lows have declined for two straight weeks (8) somewhat confirming the muddled nature of the market.
Weekly CBOE Put/Call sank to its lowest level of 0.59 last week (9). The last reading this low was logged during Christmas week last year. This was just before the market came unraveled in January.
Click for larger graphic…
Pulse of the Market Table
June Almanac, Vital Stats & Strategy Calendar: Political Uncertainty Wanes & Market Celebrates
By: Jeffrey Hirsch & Christopher Mistal
May 26, 2016
June has shone brighter on NASDAQ stocks over the last 45 years as a rule, ranking eighth with a 0.7% average gain, up 25 of 45 years. This contributes to NASDAQ’s “Best Eight Months” which ends in June. June ranks near the bottom on the Dow Jones Industrials just above September since 1950 with an average loss of 0.3%. S&P 500 performs poorly as well, ranking tenth, but essentially flat (–0.03% average). Small caps also tend to fare well in June. Russell 2000 has averaged 0.6% in the month since 1979.
In election years since 1950, June’s performance improves notably. June is the #4 DJIA month in election years averaging a 0.9% gain with a record of eleven advances in sixteen years. For S&P 500, June is #1 with an average gain of 1.4% (13-3 record). Election year June ranks #4 for NASDAQ and #5 for Russell 2000 with average gains of 1.9% and 1.6% respectively. This performance improvement is most likely the result of presidential candidate field being sufficiently narrowed and the ultimate Democratic and Republican nominees identified. 
[Election Year June Performance Table]
The second Triple Witching Week of the year brings on some volatile trading with losses frequently exceeding gains. On Monday of Triple-Witching Week the Dow has been down eleven of the last nineteen years. Triple-Witching Friday is better, up nine of the last thirteen years, but weaker over the past 23 years, up thirteen, down ten with an average loss of 0.2%. Full-week performance is choppy as well, littered with greater than 1% moves in both directions. The weeks after Triple-Witching Day are horrendous. This week has experienced Dow losses in 23 of the last 26 years with average losses of 1.1%. NASDAQ and Russell 2000 have fared better during the week after, up five of the last seven.
June’s first trading day is the Dow’s best day of the month, up 21 of the last 28 years. Gains are sparse throughout the remainder of the month until the last three days when NASDAQ and Russell 2000 stocks begin to exhibit strength. The last day of the second quarter is a bit of a paradox as the Dow has been down 17 of the last 25 while NASDAQ and Russell 2000 have nearly the opposite record, although, since 2003 technology and small-caps indices have been dragged down by their large-cap brethren.
June (1950-2015)
  DJI SP500 NASDAQ Russell 1K Russell 2K
Rank 11 10 8 11 8
# Up 30 34 25 21 23
# Down 36 32 20 16 14
Average % -0.3   -0.03   0.7   0.2   0.6
4-Year Presidential Election Cycle Performance by %
Post-Election -1.2   -0.7   0.5   0.1   0.9
Mid-Term -1.7 -1.9 -1.6 -1.4 -1.6
Pre-Election 0.8 1.2 1.9 1.1 1.4
Election 0.9 1.4 1.9 0.8 1.6
Best & Worst June by %
Best 1955 6.2 1955 8.2 2000 16.6 1999 5.1 2000 8.6
Worst 2008 -10.2 2008 -8.6 2002 -9.4 2008 -8.5 2010 -7.9
June Weeks by %
Best 6/7/74 6.4 6/2/00 7.2 6/2/00 19.0 6/2/00 8.0 6/2/00 12.2
Worst 6/30/50 -6.8 6/30/50 -7.6 6/15/01 -8.4 6/15/01 -4.2 6/9/06 -4.9
June Days by %
Best 6/28/62 3.8 6/28/62 3.4 6/2/00 6.4 6/10/10 3.0 6/2/00 4.2
Worst 6/26/50 -4.7 6/26/50 -5.4 6/29/10 -3.9 6/4/10 -3.5 6/4/10 -5.0
First Trading Day of Expiration Week: 1990-2015
#Up-#Down   14-11   15-11   11-15   13-13   11-15
Streak   D1   D1   D1   D1   D1
Avg %   -0.06   -0.1   -0.3   -0.1   -0.4
Options Expiration Day: 1990-2015
#Up-#Down   16-10   17-9   14-12   16-10   16-10
Streak   D1   D1   D1   D1   D1
Avg %   -0.2   -0.1   0.001   -0.1   0.04
Options Expiration Week: 1990-2015
#Up-#Down   16-10   15-11   12-14   13-13   13-13
Streak   U2   U2   U2   U2   U2
Avg %   -0.01   0.04   -0.2   -0.03   -0.1
Week After Options Expiration: 1990-2015
#Up-#Down   3-23   7-19   12-14   8-18   11-15
Streak   D2   D2   D1   D2   D1
Avg %   -1.1   -0.7   -0.2   -0.7   -0.5
June 2016 Bullish Days: Data 1995-2015
  1, 7, 14, 15, 17 1, 2, 14, 15, 17 2, 15, 17, 28-30 15, 17 7, 14, 15, 28-30
June 2016 Bearish Days: Data 1995-2015
  9, 21, 23, 24, 30 23, 24, 27 22-24 7, 23, 24, 27 8, 9, 22, 24
June 2016 Strategy Calendar
By: Christopher Mistal
May 26, 2016
Near-term Market Outlook Hangs in the Balance of New All-Time Highs
By: Jeffrey Hirsch & Christopher Mistal
May 24, 2016
Last Friday we posted on our blog that there is a 76.9% Chance of Bear Market Decline Exceeding 20%. As the S&P 500 was reaching the 1-year anniversary of making its last all-time high, we examined the previous times the benchmark had gone more than a year without marking a new high. 
Starting with the S&P 500 all-time closing high in 1929, there were 13 previous times where S&P 500 spent more than 1-year before closing at a new all-time high. With the exception of 1994, there was always a bear market using our preferred Ned Davis Research definition of a bear market which requires a peak to trough decline of 13% or more after 145 calendar days or a 30% decline. Using the arbitrary 20% definition, S&P 500 avoided a bear market just 3 times out of 13 (shaded in light grey in the table). In other words, previous all-time-high 1-year dry spells suffered a 20% or greater S&P 500 decline 76.9% of the time.
Prompted by an inquiry from a reader we have delved a bit deeper. In the table below we have added when the Ned Davis Research (NDR) bear was reached on DJIA, when the S&P 500 hit the -20% level and where the S&P 500 was at the 1-year mark. This presents two different scenarios for the current situation in 2016. The current market clearly bears some resemblance to the 3 light grey highlighted years above in 1960, 1984 and 1995 where the market suffered mild declines, avoiding the 20% bear and rebounding relatively quickly, resuming the overarching up move of a secular bull market.
Click table to view full size in new window…
SP500 Time Since All-Time Highs Table
On the flipside, the current market also bears close resemblance to the 3 years shaded in light pink. At the 1-year mark in 1957, 1969 and 1981 the market was in the midst of a much larger decline that had yet to materialize. In 1957 the market had barely dropped, not yet reaching the NDR bear-level. But in 1969 and 1981 trouble was brewing. NDR bear levels had been reached, but 20% declines and more we still in store.
A new high in the near term would be rather encouraging and likely be a sign that at a minimum the market will mark time, move sideways and give up little ground. On the contrary, should the current rally fail to produce a new all-time high, which would suggest underlying weakness and greater odds of a 20% bear market in the next 6-12 months.
Stock Portfolio Updates: Cash & Short Positions Fend Off Market Decline
By: Jeffrey Hirsch & Christopher Mistal
May 19, 2016
U. S. equities are at a critical juncture. As you are all most likely aware May is the first month of the Worst Six Months – we are not going to use that over played market saying. You may also be aware that we issued our Best Six Months Seasonal MACD Sell Signal on April 5, 2016. Since that Sell Signal the market proceeded to make a brief high 4/20. Then things began to deteriorate.
NASDAQ is on pace for its fifth straight weekly loss and DJIA and S&P 500 are on pace for four losses in a row. Weekly advancing issues on the NYSE have been falling the four weeks while declining issues have been on the rise and greater than advancers the past 2 weeks. New 52-week highs have expanded the past three weeks, but so have new lows, albeit not by much. 
Market tops or high-water marks are often associated with a large number of new highs. If you think about it, it’s logical. New highs on the NYSE came in at 445 last week; this was the largest number since February 2015. New lows, which were 1451 on January 22, 2016, are just starting to pick up, hitting 80 last week, the highest since the end of February 2016. New lows tend to max out at low points.
The weekly CBOE equity-only put/call ratio, a fear gauge we prefer because it measures where traders are putting their money, hit 0.84 last week, the highest level since January 15, 2016. Traders are buying puts as bearish factors are mounting. Negative seasonality, hawkish Fedspeak, a tumultuous presidential campaign, global economic woes and tepid growth here in The States adds up to market trouble.
[SP500 Daily Bar Chart]
This chart of the S&P 500 illustrates a few ominous chart patterns. The uptrend line since the February low appears to have been broken. A Head-And-Shoulders topping pattern is about to break through its neckline right at monthly pivot point support (green dotted line) and a falling 200-day moving average (red line). And once again the market may have topped out in a notorious Golden Cross, which we have shown to be of little value as the bullish indicator it is advertised to be. 
In the lower panes, the cumulative Advance-Decline line is flat-lining and drifting lower. Relative strength has been heading bearishly lower as the market made the recent highs. Finally, the slower MACD Sell Indicator has been heading down since late-March and our April 5 Sell Signal. A further breakdown here or sometime in the next few weeks could start us on a path toward lower support in the S&P 500 1800-1900 range.
Portfolio Updates
Over the past four weeks since last update, S&P 500 has slipped 2.2% lower and Russell 2000 declined 3.2% as of yesterday’s close. As was anticipated in the last update, the market did fail at major resistance right around its all-time highs last month and the Almanac Investor Stock Portfolio’s sizable cash position has buffered it from recent weakness. The addition of last month’s Five Select Seasonal Shorts also boosted the portfolio. Collectively, the entire stock portfolio gained 0.5% over the same four-week time period. Mid-caps performed best adding 1.6%. Large-caps were worst, off 1.4%.
The basket of Select Seasonal Shorts on April 21 has thus far proven timely. Four of the five new short trade ideas were quickly added to the portfolio in April. Virtus Investments (VRTS) was the last to reach one of its trigger prices on May 10. As of yesterday’s close this basket of shorts had an average gain of 10.1%. Short trades are identified in the portfolio with an “(S)” after the company name. For further ease in locating they are also shaded light grey. VRTS, LNN, KNX, MEOH and IVZ are on Hold. Please note associated, updated stop losses in the table below.
Global Brass and Copper Holdings (BRSS) remains a solid performer in the Small-cap portfolio. Net sales were softer in Q1 of this year compared to the same quarter a year ago however, costs also shrunk substantially resulting in an improvement in earnings. Management also reaffirmed its full-year 2016 outlook. BRSS is on Hold. 
Per last month’s advice, Stein Mart Inc (SMRT) was sold and closed out of the portfolio using its closing price on April 20 for a minor gain of 6.1%. This sale proved timely as shares soon thereafter quickly began to tumble and were as low as $5.61 yesterday before bouncing today.
In the Mid-cap portfolio, existing holding in Scotts Miracle-Gro (SMG) and Sunoco (SUN) stumbled and now trade around their respective buy prices. SMG reported respectable earnings with solid revenue growth and expanding margins. SUN earnings were so-so. Revenues were down, but margins were up. SMG and SUN are on Hold.
A review of our Large-cap positions reveals the bulk of the losses there was due to the addition of Starbucks (SBUX) and weakness in Centene (CNC) and Hanesbrands (HBI). Much of the weakness appears to be the result of broader weakness and not any specific problem with the actual companies. HBI undoubtedly got dragged down by the recent retail sector rout. CNC is one of the few insurers that are actually profiting from its involvement with the ACA healthcare exchanges. SBUX could be taking a modest hit because it is borrowing $500 million to promote sustainable practices. SBUX, CNC and HBI are all on Hold.
Please note stop losses for several positions have also been increased. All other positions not previously mentioned are on Hold.
[Almanac Investor Stock Portfolio – May 18, 2016 Closes]
Disclosure Note: At press time, officers of the Hirsch Organization, or accounts they control held positions in CNC, CVS, HBI, SMG and TSCO.
Mid-Month Update: Selling in May Persists, Prepare For NASDAQ MACD Sell Signal
By: Jeffrey Hirsch
May 17, 2016
The Dow Jones Industrials and S&P 500 indexes hit their 2016 highs on 4-20 and since have struggled to get higher. There are many factors causing the market to fail to gain any traction, but let’s face it, folks have been selling in May. Even major Wall Street players are selling in May. 
It was reported yesterday that the analyst team at Goldman Sach, led by Chief U.S. Equity Strategist David Kostin stated, “Unbalanced distribution of upside/downside risks suggests ‘sell in May’ or buy protection.” The folks at Goldman are also tracking the presidential cycle. They note that everyone is preoccupied with the electoral campaigns, which is distracting investors from the market and that “History shows that during a typical presidential election year, the S&P 500 index remains relatively range-bound until November.
Earlier this month Guggenheim’s Scott Minerd told Maria Bartiromo on Fox Business that “statistically it’s been demonstrated that [sell in May] actually works.” And he went on to say, “given what we have on the horizon…it would be a good time to reallocate away from equities in to fixed income.” 
Election years have been treacherous in recent times and we have been tracking the eighth year of the president’s term closely. The February-April rally had pushed the market back into the bullish, incumbent party win pattern, but trading since mid-April has the market on the ropes again. Here are a few different looks at how 2016 is stacking up against history. 
[DJIA 1-year seasonal]
[SP500 1-year seasonal]
[NASDAQ 1-year seasonal]
The above chart of DJIA’s 1 year pattern, illustrates several different historical election-year patterns that cover all the potential scenarios for 2016, at least from this 4-Year Cycle perspective. The graph charts all election years since 1901 against eighth years of terms, years when no sitting president was running, incumbent party wins and incumbent party losses and 2016.
Earlier this year we were tracking closer to the weaker patterns. For the past couple of months DJIA and S&P 500 have been on the more positive track. NASDAQ has been lagging all year. Since mid-April stocks have failed to gain traction and if they don’t gain some soon it could be a cruel summer for the bulls. 
The market abhors uncertainty. And Trump scares the pants off The Street. He may be a businessman and many things, but one thing’s for certain, we have no idea what he’ll do in office. At least we have an idea of what Clinton will do. Negative ads on Trump have yet to derail him. If Trump continues to prevail, I suspect the market will retreat, increasing his odds of winning and of flat to negative market returns in 2016. On the contrary if Clinton starts to shine the market will likely do better. I don’t expect much upside until after the conventions.
Summer Shorts
With the market in retreat and the campaign rhetoric turning up another notch (if you can believe that), it’s time to prepare for more downside and our NASDAQ Best Eight Months MACD Sell Signal. The Clinton power machine is now taking direct aim at Trump, while he has yet to really begin counter-punching. Yet Clinton does not seem to be gaining much traction with the shots at Trump. This year’s election campaign is about get very interesting.
Meanwhile, the economy is not exuding robust growth. The Fed is on the verge of raising rates again, and it may surprise with a hike in June or July as inflation just up-ticked more than it has in the past year. NASDAQ is underperforming and is down -1.4% since our Best Eight Months MACD Buy Signal on October 5, 2015. This is not a good omen. 
In the chart below NASDAQ is struggling to stay above pivot point support (green dotted line) and the pink line 50-day moving average is nearing the red 200 DMA and the vaunted golden cross, which we have shown to be less significant than believed and often associated with tops and the extended rallies, than the beginning of a new up move.
[NASDAQ Chart]
In preparation for the Worst Four Months July-October, we like to remind you that we have found it imprudent to employ a fully defensive posture, until after our NASDAQ Best Eight Months MACD Sell Signal, which can only occur on or after June 1. We already have assumed a cautious stance and taken several defensive positions. While we remain data dependent, we will likely not add more shorts until early July.
Gold’s Glitter Could Begin to Fade Soon
By: Christopher Mistal & Jeffrey A. Hirsch
May 12, 2016
Gold has a seasonal tendency to peak in late January after the holiday season, as jewelry demand starts to decline. Price increases can last into the first part of February, as inventories are being replenished by dealers preparing for retail sales for Valentine’s Day gifts. 
Gold tends to post seasonal bottoms in late June or early July, as demand increases when jewelers again stock up ahead of a the seasonal wedding event in India and also, when investors return from summer vacations. Gold prices are also subject to spikes in demand from the investment community, as a hedge or protection from concerns over inflation or times of economic instability or uncertainties. It is valued in terms of the U.S. dollar, so periods of dollar weakness helps support gold’s value.
In the following chart, various 1-year seasonal patterns have been plotted using continuously-linked front-month gold future prices. Gold’s 2016 year-to-date performance is included for comparison. Gold’s 11-, 21- & 41-year seasonal patterns are all relatively similar throughout the year and fairly closely follow the pattern of an early-year peak, followed by sideways to lower trading toward a June/July low and then a rally to close out the year. However, since trading at its all-time high in August 2011, gold has been in decline and its 5-year seasonal pattern reflects this with an average 5% loss by yearend for the last five years.
[Gold Continuous Contract Daily Bar Chart & 1-Yr Seasonal Pattern]
In Tuesday’s Seasonal Sector Trades Alert, we covered silver’s seasonal tendency to decline from approximately mid-May until the end of June. As one may suspect, gold does indeed offer a similar trade opportunity, but it has not been as successful as silver’s. Shorting an August gold futures contract on or about May 20 and holding until the end of June has been fruitful in 27 of the last 41 years for a success rate of 65.8%. This trade’s best year was 2013 when stocks put up their best yearly performance in more than a decade. This trade has also worked in 8 of the last 10 years.
[May Short Gold Futures Contract – Trade History]
The success of this trade and/or Tuesday’s silver trade will likely depend on the Fed, what it does or does not do with interest rates and ultimately the impact on the U.S. dollar. Traditional jewelry and industrial demand is likely to follow historical patterns but investment demand is the wildcard. Gold is an appealing store of wealth when the U.S. dollar is weakening and gold is now clearly competitive with cash, especially in countries with negative interest rates. Those negative rates are no different than having to pay a storage fee for physical gold or an expense ratio for holding an ETF consisting of gold. 
At best, the U.S. dollar’s trend displayed in the following chart is neutral and at worst it is bearish. The U.S dollar has been in a trading range for about a year having failed to breakout and remain above 100 while managing to stay above 90. However, since the Fed hiked rates last December, the U.S. dollar has made a series of lower lows and lower highs suggesting a new bearish trend is developing.
[U.S. Dollar index Weekly Bar Chart]
This bearish trend is most likely the result of the dovish tone the Fed has taken in recent meetings and the expectation that the Fed will not make another move until much later this year. The assumption that the Fed will not act anytime soon could prove overly optimistic. The Fed has repeatedly expressed its desire to normalize rates and at least half their dual mandate is satisfied. Unemployment is at 5.0%. Inflation could also accelerate now that oil appears to have found stability, up about 75% from its February lows. Other commodities appear to be following suit.
Last December we took a contrarian view of interest rates and the U.S. dollar that ultimately transpired so this gold short trade is worth a shot. There are a few leveraged, inverse gold ETFs and ETNs to trade, but that leverage will only amplify volatility which is likely to result in a less than desirable outcome. Instead a basic short position in SPDR Gold (GLD) will be the path taken. GLD could be shorted on a break down through support at $117.79 or near resistance at $126.72 with confirming negative stochastic, MACD, and relative strength indications. An initial stop loss of $130.00 is suggested. This trade will be tracked in the Almanac Investor ETF Portfolio which will be updated again next week.
GLD chart
Seasonal Sector Trades: Silver & Coffee Seasonal Weakness
By: Christopher Mistal & Jeffrey A. Hirsch
May 10, 2016
Silver has a strong tendency to peak or continue lower in May, bottoming in mid to late June. Traders can look to sell silver on or about May 13 and maintain a short position until on or about June 24. In the past 43 years this trade has seen declines 29 times for a success rate of 67.4%. Prior to 2014, this trade had been successful for eight years in a row. Last year, this trade did get back on track and is now been successful in 9 of the last 10 years. In the second chart below, the 43-year historic average seasonal price tendency of silver as well as the decline typically seen from mid-May until the low is posted in late June into early July is shown. This May silver short trade captures the tail end of silver’s weak seasonal period (shaded yellow). A weakening U.S. dollar caused silver to spike in April, but the dollar has firmed and the spike appears to have run its course.
[May Short Silver Futures Contract – Trade History]
[Silver Continuous Contract Daily Bar Chart & 1-Yr Seasonal Pattern]
ProShares UltraShort Silver (ZSL) generally corresponds to two times the inverse of the daily performance of silver. However, ZSL is not tracking spot silver price, rather it is tracking the U.S. dollar price for delivery in London. Nonetheless, ZSL has a solid history of rising when silver price declines. ZSL could be bought on dips below $39.00. If purchased, an initial stop loss of $35.50 is suggested. If ZSL then rises and closes above $40.95 switch to a 5% trailing stop loss. Use ZSL’s daily close to update its stop loss. This trade will be tracked in the Almanac Investor ETF Portfolio.
[ProShares UltraShort Silver (ZSL) Daily Bar Chart]
Coffee Buzz Fades In Summer
Coffee typically posts a seasonal high in May. This creates coffee’s most powerful seasonal play under normal weather conditions, which means a lack of frost in the Southern Hemisphere growing regions of Columbia and Brazil. Traders should look to sell short on or about May 23 and hold through August 9 (shaded yellow in chart below). This trade has worked 30 out of last 42 years for a 71.4% success rate.
[May Short Coffee Futures Contract – Trade History]
This trade did not fare so well in 2006, 2007, and 2010. An explanation as to why this market defied the seasonal tendency to decline in this time period was that there was a lack of rain during the key flower pollination stage, resulting in a much smaller crop than expected in Brazil back in 2007. Estimates were looking for 50 million bags of production, but that estimate backed down to 45 million bags of production. So in essence, supply declined due to poor weather conditions as demand remained steady. Tight supplies and a falling dollar supported coffee in 2010 through early 2011.
Traders can sell futures or implement a bearish option position. As for other trading opportunities, the following chart shows the coffeehouse and distributor Starbucks (SBUX) price line overlaid on the bar chart of coffee. When coffee declines, historically we have seen a price increase for shares of SBUX. The reverse is also true. If coffee prices have been up strong on or about May 23, and if SBUX is off its 52-week high, then traders may want to look to buy shares of SBUX or consider call options. Coffee is indeed up from its lows in January while SBUX is off of its highs. SBUX could be purchased on dips below $57.50. If purchased employ a stop loss of $52.90. This trade will be tracked in the Almanac Investor Large-Cap Portfolio.
[Coffee Continuous Contract Daily Bar Chart, 1-Yr Seasonal Pattern & SBUX Line]
[Starbucks (SBUX) Daily Bar Chart]
ETF Portfolio Updates: Defense takes the Field
By: Christopher Mistal
May 05, 2016
Since hitting a multi-month high on April 20, DJIA and S&P 500 have been steadily trending lower and May is living up to its past election-year performance with sub-par performance. First trading-day strength quickly faded with the market giving back that day’s gains and more on the second trading day. Even today’s early gains quickly vanished. After about two weeks of weakness DJIA and S&P 500 are now approaching key support levels.
[DJIA Daily Bar Chart]
[S&P 500 Daily Bar Chart]
[NASDAQ Daily Bar Chart]
At today’s lows, S&P 500 was a mere three points above its quickly ascending 50-day moving average. DJIA has a slightly better cushion of around 100 points. NASDAQ is in no-man’s land trading well below both its 50- and 200-day moving averages. Two weeks of weakness has Stochastic, relative strength and MACD indicators stretched toward oversold. An oversold bounce is not out of the question however, NASDAQ’s lagging performance is likely to limit the magnitude and duration of a bounce, further reducing the already slim odds of new all-time highs.
ETF Portfolio Updates
Over the past four weeks since last update, the market presented ample opportunity to add our defensive trade ideas to the ETF Portfolio at or below suggested buy limits. AdvisorShares Ranger Equity Bear (HDGE) was the first position added when it traded under its buy limit of $10.70 on April 13. HDGE traded as low as $10.03 in April, but has since rebounded. Additional purchases could be considered at current prices up to the buy limit.
iShares 20+ Year Treasury Bond (TLT) and iShares Core US Aggregate Bond (AGG) were also picked up last month. TLT was added on April 20 when it traded below $129.75 and AGG was added on April 26 when it traded under $110.35. Additional purchases could be considered on dips below their respective buy limits.
Three of last month’s short trade ideas have been executed. SPDR Financial (XLF) traded up to and modestly through resistance near mid-April before stalling out with the broader market. SPDR Materials (XLB) was also shorted but was quickly covered at $47.05 for a 1.5% loss during what turned out to be a false breakout. That breakout failed and XLB could be shorted again at current prices. iShares DJ Transports (IYT) has not yet traded at either of its possible entry points, but is nearing support. Should support around $137 break, IYT could be shorted.
U.S. dollar weakness triggered the end of our precious metal related trades. Direxion Daily Jr Gold Miners Bear 3X (JDST) and ProShares UltraShort Silver (ZSL) have both been stopped out for larger than acceptable losses. This is an example of leverage making the situation worse. Sizable moves in gold and silver triggered big moves in gold and silver stocks that were in turn amplified into even greater moves. ZSL plunged, but rebounded to allow sale at its stop loss price of $44.63. JDST plunged, and did not rebound, through and closed below its stop on April 11 and was closed out of the portfolio using the average price on April 12.
On May 2, First Trust ISE-Revere Natural Gas (FCG) reverse split, 1 for 5. Its original price and stop loss have been adjusted for the split and is on Hold. Please note stop losses for USO, XLU, IWM, QQQ and UNG have been raised
[Almanac Investor ETF Portfolio – May 4, 2016 Closes]
Disclosure Note: At press time, officers of the Hirsch Holdings, or accounts they control held positions in USO and XLU.
Top Sectors for the “Worst Six Months” May to October
By: Christopher Mistal
May 03, 2016
Each and every year, as the “Worst Six Months” May through October for DJIA and S&P 500 near, the “Sell in May” debate begins. Since we already know that the market tends to post the majority of its gains from November through April and does very little from May to October, we are not going to bother debating whether one should actually sell in May or not. Instead, let’s focus on what tactical changes can be made in portfolios to take advantage of what actually does work during the “Worst Six Months” while either shorting or outright avoiding the worst of the worst. 
In the following table, the performance of the S&P 500 during the “Worst Six Months” May to October is compared to fourteen select sector indices or sub-indices, gold and the 30-year Treasury bond. Nine of the fourteen indices chosen were S&P Sector indices. Gold and 30-year bond are continuously-linked, non-adjusted front-month futures contracts. With the exception of two indices, 1990-2015, a full 26 years of data was selected. This selection represents a reasonably balanced number of bull and bear years for each and a long enough time frame to be statistically significant while representing current trends. In an effort to make an apple-to-apple comparison, dividends are not included in this study.
[Various Sector Indices & 30-Year Treasury Bond versus S&P 500 during Worst Six Months May-October Since 1990 table]
Using the S&P 500 as the baseline by which all others were compared, seven indices outperformed during the “Worst Six Months” while nine underperformed based upon “AVG %” returned. At the top of the list are Biotech and Healthcare with average gains of 9.47% and 4.95% during the “Worst Months.” But, before jumping into Biotech positions, only 21 years of data was available and in those years Biotech was up just 52% of the time from May through October. Some years, like 2014, gains were massive while in down years losses were frequently nearly as large.
[Biotech mini-table]
Runner-up, Healthcare with 26 years of data and a 65% success rate is probably a safer choice than Biotech. Its 4.95% AVG % performance comes by way of one less loss in five additional years of data and just two double-digit losses, both in bear markets during 2002 and 2008.
[Healthcare mini-table]
Other “Worst Six” top performers consisted mostly of the usual suspects when considering defensive sectors. Consumer Staples, 30-year Treasury bonds, gold and Utilities all bested the S&P 500. Information Technology also performed surprisingly well, but appears to be highly correlated with S&P 500 (losing years in bear markets and similar monthly performance figures). Although not the best sector by AVG %, Consumer Staples advancing 81% of the time is the closed thing to a sure bet for gains during the “Worst Months.” 
[Consumer Staples mini-table]
At the other end of the performance spectrum we have the sectors to short or avoid altogether. The Materials sector was the worst over the past 26 years, shedding an average 2.37% during the “Worst Six.” Transportation, PHLX Gold/Silver, Industrials and NYSE ARCA Natural Gas also recorded average losses. However, based solely upon the percentage of time up, the stocks only, PHLX Gold/Silver index is the most consistent loser of the “Worst Six” advancing just 42% of the time.
[PHLX Gold/Silver mini-table]
Also interesting to note is the fact that every sector, gold and 30-year bonds are all positive in May, on average. It’s not until June when things begin to fall apart for many sectors of the market and the market as a whole. July tends to see a broad bounce, but it tends to be short-lived as August and September tend to be downright ugly on average. It is this window of poor performance that has given October a lift in the past 26 years. Only Biotech, 30-year bonds, gold (futures & gold& silver stocks) and Utilities manage to post gains in August and September.
Based upon % Up during the “Worst Six Months,” Consumer Staples, Utilities and 30-year Treasury bonds look like the best place to be while Gold/Silver mining stocks (XAU), Transports and Materials could be shorted or avoided. May looks like a great time to re-balance a portfolio as you will likely be closing out long positions into strength and short trade ideas are worth considering given June’s nearly across-the-board poor performance.