September 2015 Trading & Investment Strategy
August 25, 2015
September Almanac, Vital Stats & Calendar: Back to School, Q3 House Cleaning, Worst Month Since 1950
By: Christopher Mistal & Jeffrey A. Hirsch
August 25, 2015
The start of business year, end of summer vacations, and back to school made September a leading barometer month in first 60 years of 20th century, now portfolio managers back after Labor Day tend to clean house Since 1950, September is the worst performing month of the year for DJIA, S&P 500, NASDAQ (since 1971) and Russell 1000 (since 1979). Back-to-back gains in September 2012 and 2013 have lifted Russell 2000 to third worst (since 1979). September was creamed four years straight from 1999-2002 after four solid years from 1995-1998 during the bubble madness. September gets no respite from positive pre-election year forces.
Although the month has opened strong in 13 of the last 20 years (a fading trend as S&P 500 has been down five of the last six first trading days), as tans begin to fade and the new school year begins, fund managers tend to sell underperforming positions as the end of the third quarter approaches, causing some nasty selloffs near month-end over the years. Recent substantial declines occurred following the terrorist attacks in 2001 (DJIA: –11.1%), 2002 (DJIA –12.4%), the collapse of Lehman Brothers in 2008 (DJIA: –6.0%) and U.S. debt ceiling debacle in 2011 (DJIA –6.0%). However, September is improving with S&P 500 advancing in eight of the last 11 Septembers and DJIA climbing in seven.
September Triple Witching week is basically 50/50 with gains slightly more often than not, but is has suffered many large losses. DJIA, S&P 500, Russell 1000 and 2000 have recorded gains on Monday of expiration week for three straight years 2009-2011. NASDAQ has been down three straight years since. Triple-Witching Friday has been firm the past ten years with every index advancing at least eight times. The week after Triple Witching has been brutal, down 21 of the last 25, averaging an S&P 500 loss of 1.1%. In 2011, DJIA and S&P 500 both lost in excess of 6%.
In recent years, Labor Day has become the unofficial end of summer and the three-day weekend has become prime vacation time for many. Business activity ahead of the holiday was more energetic in the old days. From 1950 through 1977 the three days before Labor Day pushed the DJIA higher in twenty-five of twenty-eight years. Bullishness has since shifted to favor the two days after the holiday as opposed to the days before. DJIA has gained in 14 of the last 21 Tuesdays and 16 of the last 21 Wednesdays following Labor Day.
September (1950-2014)
  DJI SP500 NASDAQ Russell 1K Russell 2K
Rank 12 12 12 12 11
# Up 26 29 24 18 20
# Down 39 35 20 18 16
Average % -0.7   -0.5   -0.5   -0.6   -0.4
4-Year Presidential Election Cycle Performance by %
Post-Election -0.7   -0.6   -0.3   -0.7   -0.7
Mid-Term -1.0 -.04 -0.8 -1.1 -0.6
Pre-Election -0.9 -0.8 -0.7 -0.7 -1.2
Election -0.4 -0.2 -0.2 0.2 0.7
Best & Worst September by %
Best 2010 7.7 2010 8.8 1998 13.0 2010 9.0 2010 12.3
Worst 2002 -12.4 1974 -11.9 2001 -17.0 2002 -10.9 2001 -13.6
September Weeks by %
Best 9/28/01 7.4 9/28/01 7.8 9/16/11 6.3 9/28/01 7.6 9/28/01 6.9
Worst 9/21/01 -14.3 9/21/01 -11.6 9/21/01 -16.1 9/21/01 -11.7 9/21/01 -14.0
September Days by %
Best 9/8/98 5.0 9/30/08 5.4 9/8/98 6.0 9/30/08 5.3 9/18/08 7.0
Worst 9/17/01 -7.1 9/29/08 -8.8 9/29/08 -9.1 9/29/08 -8.7 9/29/08 -6.7
First Trading Day of Expiration Week: 1990-2014
#Up-#Down   17-8   14-11   10-15   14-11   11-14
Streak   U2   D1   D3   D1   D1
Avg %   -0.1   -0.2   -0.4   -0.2   -0.3
Options Expiration Day: 1990-2014
#Up-#Down   14-11   15-10   17-8   16-9   18-7
Streak   U1   D3   D2   D2   D2
Avg %   0.1   0.2   0.2   0.2   0.2
Options Expiration Week: 1990-2014
#Up-#Down   15-10   17-8   16-9   17-8   15-10
Streak   U2   U2   U2   U2   D1
Avg %   0.01   0.2   0.1   0.2   0.3
Week After Options Expiration: 1990-2014
#Up-#Down   5-20   4-21   9-16   5-20   7-18
Streak   D4   D4   D1   D4   D1
Avg %   -1.2   -1.1   -1.0   -1.1   -1.6
September 2015 Bullish Days: Data 1994-2014
  2, 8, 10, 11 1, 8-11, 14, 16 1, 4, 8, 9, 11, 14 1, 8-11, 14, 16 1, 4, 8, 11, 14
  16, 28 28, 29 16, 18 28, 29 16, 29
September 2015 Bearish Days: Data 1994-2014
  22, 23, 30 21, 22, 23, 30 15, 22, 23, 30 22, 23, 24, 30 22, 23, 25
September 2015 Strategy Calendar
By: Christopher Mistal
August 25, 2015
September 2015 Calendar
Market at a Glance 8/20/2015
By: Christopher Mistal
August 20, 2015
8/19/2015: Dow 17348.73 | S&P 2079.61 | NASDAQ 5019.05 | Russell 2K 1202.98 | NYSE 10687.03 | Value Line Arith 4604.17
Psychological: Edgy. Volatility, measured by CBOE VIX index is rising. Major indices are negative year-to-date again. 200-day moving averages have been violated and there is a death cross on DJIA’s chart. Traders and investors not in cash and/or on vacation are definitely worried. CBOE Weekly Put/Call ratio climbed to 0.78 and Investor’s Intelligence is reporting the highest number of correction advisors since last October. Sentiment is approaching bearish levels seen at some recent market lows, but a catalyst to turn the market is still absent. 
Fundamental: Weak. Corporations are struggling with sluggish global growth and a strong U.S. dollar. Revenues and earnings may have largely beat expectations in the second quarter, but the bar was not that high. Depending on data source, Q2 earnings were flat or negative and Q3 is currently forecast to be even weaker. Crumbling commodity prices are fueling fresh new deflation concerns. For the time being, the U.S. economy has largely managed to shrug off falling global growth. At some point, it may no longer be able to do that.
Technical: Range bound. Just barely hanging on to the bottom end of their respective trading ranges is a more accurate description. DJIA, S&P 500, NASDAQ and Russell 2000 have all dropped below their 200-day moving averages. DJIA has a death cross on its chart on August 11 and is the weakest of the group. NASDAQ is still the strongest looking chart, still trading above its March low and still positive year-to-date. Mid-December/January lows for DJIA, S&P 500 and Russell 2000 are the next key levels to watch. DJIA closed below 17000 at the close today. S&P 500 is flirting with1990-2000 and Russell 2000 1150.
Monetary: 0-0.25%. Based upon 30-day Fed Funds Futures traded at the CME today, a September rate increase is not that likely. The September contract is currently suggesting Fed funds around 0.165 when it settles on October 1. These contracts represent actual money and are probably the best indicator of when the Fed will make a move. Assuming the Fed stays dovish and just goes to 0.25% on its first move; Fed Funds Futures currently suggest a hike in December.
Seasonal: Bearish. Since 1950, September is the worst performing month of the year for DJIA, S&P 500, NASDAQ (since 1971) and Russell 1000 (since 1979). Beneficial pre-election-year forces do little to change this. Depending on index, September is still the worst or second worst month of pre-election years, negative across the board.
September Outlook: Other Worst Month of the Year Wait for Fatter Pitch
By: Jeffrey A. Hirsch & Christopher Mistal
August 20, 2015
Ouch! Stocks got slammed hard again today pushing the S&P 500 into negative territory for the year. The Dog Days are not over for the market. This hazy, hot and sultry time during July and August were named the Dog Days of summer in antiquity by stargazers in the Mediterranean as the time period before and after the conjunction of Sirius, the Dog Star of the constellation Canis Major (Big Dog) and the sun. Back in the day the Dog Days were often plagued with, fever, disease and discomfort.
Selling continues to plague the stock market and we expect selling will continue through September, the other worst month of the year along with its neighbor August. September is the worst month of the longer term since 1950. Around this time last year Jeff was on CNBC and the other commentator in the segment, Dan Greenhaus, Chief Global Strategist, BTIG (Great guy and analyst whom we respect and does great work), keenly pointed out the S&P 500 had been up in 8 of the previous 10 years from 2004 to 2013. So maybe September was not bad for the market anymore. 
Jeff pointed out that it’s not merely the month as a whole to be concerned with, but the time around Triple Witching (the third Friday), especially the week after and month end when institutions make many end-of-quarter portfolio adjustments. Not only did we get the biggest pullback of the year from September Triple Witching to mid-October, but September was down as well. 
September’s first 11 trading days have a rather bullish bias with 7 of these days garnering our bull icon for being up 60% or more of the time on the S&P 500 the last 21 years. Five bullish days in a row come right after Labor Day. However, after that September often gets ugly. So look for a little respite in early September, but be prepared for another move lower in the second half of the month and into October.
As is frequently the case many market pundits were ready to call Sell in May a bust this year when the market made nominal new highs in May and July. O ye of little faith. Thankfully, our April 30 Best Six Months MACD Seasonal Sell Signal for DJIA and S&P and our June 4 Best Eight Months MACD Seasonal Sell Signal for NASDAQ were rather timely and have helped us avoid much of the carnage. 
Our colleagues at Probabilities Fund Management, LLC (Jeff is an Investment Committee Member) are quite pleased with their current cash position. Since our MACD Seasonal Sell Signals DJIA is down about 5%, S&P –2.5% and NASDAQ –3.5%. From their respective highs DJIA is –7.4%, S&P –4.5%, NASDAQ –6.5%.
Most stock sectors come into season in October so we’ll be preparing sector ETF buy limits and a fresh basket of small-, mid- and large-cap stocks from our fundamental and technical screens throughout September. Recent seasonal sector trade ideas in iShares NASDAQ Biotech (IBB), iShares US Tech (IYW) and SPDR Retail (XRT) are getting close to our buy limits. 
So try to be patient and keep your powder dry for what looks likely to be a decent seasonal buying opportunity later this summer or early autumn. Wait for the fatter pitch and enjoy the last days of summer.
Pulse of the Market
For the forty-fourth time since 1950, DJIA’s 50-day moving average crossed below its 200-day moving average triggering a frightening-sounding death cross (1). Our research of DJIA death crosses has concluded that this indicator is not as reliable as it once was as many of the recent death crosses occurred not that much before a short-term bottom and most of the decline had already taken place. Notable exceptions were in August 2001, July 2002 and January 2008 since 1984.
August’s first nine trading days lived up to their reputation for weakness this year and there was some mid-month strength late last week and Monday of this week, but it was fleeting. DJIA’s faster moving MACD “Buy” indicator turned positive on August 17 and its slower moving MACD indicator turned positive the following day (2). Both are negative as of today’s close.
Dow Jones Industrials & MACD Chart
On the close of August’s first trading day, DJIA issued its eighth Down Friday/Down Monday (DF/DM) warning of 2015 forming the second back-to-back reading of the year (3). This back-to-back DF/DM preceded a brief market bounce just like the previous occurrence in June. That bounce and this month’s bounce both proved to be short-lived as the longer-term historical tendency reasserted itself and DJIA subsequently moved lower. Recall, of 163 DF/DM’s since 1999, DJIA was lower 96.9% of the time sometime during the next 90 calendar days after the DF/DM.
The see-saw battle between bulls and bears that has been in place for much of this year is quickly identifiable in the Pulse of the Market table. S&P 500 (4) and NASDAQ (5) have seen a week of gains followed by a week of losses since mid-July. This week is slated to be a losing week by the pattern and the market appears to be staying true to that pattern. The week after August options expiration has a bullish bias that may help lift markets next week.
NYSE Weekly Advance, Decline, High and Low metrics continue to paint a weak outlook for the market. During positive weeks, Advancers only modestly exceed Decliners while during down weeks Decliners outnumber advancers by a wider margin (6). New Highs (7) are still tepid, but new Lows have begun to ease. A more robust Advance/Decline ratio during up weeks and an uptick in new Highs would potentially be a sign that the market is rounding the corner and preparing to make a meaningful move higher. Until then, the path of least resistance is now lower.
Two weeks ago Weekly CBOE Put/Call Ratio once again reached 0.78, its highest level (8) since the start of July 2015 and May/June of 2012. July’s reading did precede a bounce, but that was about it. This time around it may take a few weekly readings near 0.80 or a spike up near 1.0 before the final bottom is reached.
Click for larger graphic…
Pulse of the Market Table
Dow Death Crosses Since 1950: Welcome to the Indicator Graveyard
By: By: Jeffrey A. Hirsch & Christopher Mistal
August 18, 2015
Following up on all the hullabaloo on the recent DJIA “death cross,” we ran all the data on all the death crosses and “golden crosses” since 1950. For the uninitiated and for clarity a death cross is when a short-term moving average of an index or stock crosses below a long-term moving average and a golden cross is the revers, when a short-term moving average crosses above a long-term moving average. It is common to use the 50-day and 200-day moving averages. And that is what happened to DJIA on August 11; its 50-day moving average crossed below its 200-day moving average.
The reason it’s called a “death cross” is because it is believed to be an indicator of an imminent market decline. Back in the old days from 1950-1982 it was a decent bear market indicator, but not so much anymore. In the table I have highlighted in yellow the death cross dates before or during bear markets as well as the associated bear market bottom. Since 1982 there are a many more death crosses that occur without any major subsequent decline.
Even more significant is that most of these death crosses occurred after a substantial decline had already occurred and there was little further downside after the death cross in the short-term, generally followed by a move higher rather quickly. For the most part death crosses have occurred near low points.
On some occasions the death cross has preceded a major downdraft ahead of the bulk of a bear market move, most of them transpired in the 1950s, 1960s, 1970s and 1980s. In recent years only the crosses in 2001, 2002 and 2008 have been indicative. We have laid out all the data for your perusal. One thing does stand out. It appears that if the market bounces a few percent higher immediately after the death cross, the next move lower appeared much more substantial.
Bottom line, there are much better indicators than the death cross in the Stock Trader’s Almanac and elsewhere. The golden cross seems much more indicative of further upside than the death cross of further downside. Since its recent death cross on August 11 DJIA was up 0.8% on the close of August 17. 
DJIA is down about 5.3% and S&P is down 1.6% since the May high and NASDAQ is down about 3% since the July high. Being in the midst of the worst two months of the year (August and September) and with the market on shaky ground, further downside is not unlikely, but the bear does not seem to be lurking just yet. Be prepared for a further 5-10% slide before this correction ends late-summer/early-fall.
DJIA Death Crosses since 1950
Mid-Month Market Update: August Delivers Typical Weakness But Mid-Month Strong
By: Jeffrey A. Hirsch & Christopher Mistal
August 13, 2015
Par for the course, August’s first nine trading days were quite weak. As of the close today, the ninth trading day of August, S&P 500 was down about 1.0% for the first nine days of August. Both DJIA and NASDAQ were down over 1% for the period while the Russell 2000 suffered most off about 2.7%.
[First 9 Days Table]
Next week is options expiration week and mid-August is often better performing than the beginning and the end of the month. This strength is punctuated with a three-out-of-four-day cluster of bullish days that wrap the weekend from August 14 to 19. A bullish day is defined as a trading day in which the S&P 500 has risen greater than or equal to 60% of the time over the past 21 years. 
August 2014 option expiration week was up nicely across the board with a 2.15% gain on NASDAQ for the week. Unfortunately, this bullish cluster has not always resulted in full-week gains during option expiration. DJIA and S&P 500 have suffered a weekly loss in three of the last five August expiration weeks.
For the past 33 years since Triple Witching began in 1982 with the introduction of S&P 500 Index Futures trading on April 21, 1982, the Monday of August expiration week has been consistently positive. Expiration day and the week as a whole are not so bullish, while the week after has exhibited more upside. DJIA shows less strength than S&P and NASDAQ. 
[Options Table]
Don’t Fear the Death Cross
Bulls are in retreat and the ranks of bears and those expecting a correction have swelled. Investors Intelligence advisor sentiment readings have shown the bulls in retreat for several weeks now down to 40.2% from 49% three weeks ago, 51.6% in late June and 57.4% at the end of April. Bears are at a high for the year at 18.6% and the correction reading is now at 41.2% (present company included). The correction camp now exceeds the bulls for the first time since last October when the summer/fall correction ended last year.
On Tuesday DJIA’s 50-day moving average fell below its 200-day moving average registering what is ominously known as the death cross. Unfounded rumor has it that this death cross is a negative indication for the stock market. Our research shows this is not always the case. DJIA’s last death cross on August 24, 2011 came 40 calendar days before the subsequent correction low was made on October 3, 2011, a modest 5.9% lower low.  A July 7, 2010 death cross was even milder with a low arriving 50 calendar days later at a mere 0.3% below the day of the cross. Most of these death crosses occur near intermediate or short-term lows. The flipside of the death cross, the golden cross, when the 50 DMA crosses above the 200 DMA is more indicative on the upside.
In the next chart the 30 trading days before and 60 trading days after all 43 DJIA death crosses since 1950 have been plotted. On average, there was nearly no difference in the severity of the decline whether it was during the “Best Six Months” or the “Worst Six Months.” The 43 previous death crosses were split nearly down the middle between the two periods, 22 were in the “Worst Six Months” and 21 in the “Best Six Months.” What is clear in the chart is that by the time the death cross occurred; the bulk of DJIA’s move lower had already taken place.
So with bulls on the run, moving averages death crossing and relatively bullish mid-August and expiration beginning tomorrow look for a short-term snap back rally before a resumption of downward pressure at the end of August and into September. In addition to seasonal pressure, economics and market action both here and abroad are not encouraging and then there is the increased likelihood of a Fed rate hike sooner rather than later – which is not historically bullish for the market in the near term.
Stock Portfolio Updates: Fasten Your Seatbelts, Bumpy Ride Ahead
By: Christopher Mistal
August 11, 2015
Following yesterday’s solid, one-plus percent across-the-board gains, today’s across the board loss of nearly equal magnitude is a clear reminder that volatility tends to really begins to pick up in August. In the following chart, weekly bars of CBOE’s Volatility Index (VIX) are plotted with its 1-year seasonal pattern plotted below. In an average year, VIX typically reaches a low in July and then begins to steadily climb toward a high sometime during October and then begin to decline once again. Note how over the last year VIX has tracked its seasonal pattern rather closely.
[VIX Daily Bars and Seasonal Pattern since 1990]
Since VIX does not measure actual volatility (daily price moves), let’s compare it to actual daily price swings of the S&P 500 since 1950. In the following table, the number of trading days where S&P 500 closed up or down greater than or equal to 1% appears next to the month. In the third column the total number of trading days in that month appears. Lastly the percentage of days greater than or equal to +/- 1% is calculated. August has the third highest percentage of days +/- 1%. October has the most which matches the 1-year seasonal pattern above. This historical data suggests the market has just begun its most volatile four-month span of the year, August through November. There are likely to be many more days like today, and yesterday, in coming weeks.
[S&P 500 Table of Daily Moves +/-1%]
Stock Portfolio Updates 
Over the past two and a half weeks since last update, through the market’s close on August 10, S&P 500 slipped 0.5%. Russell 2000 was down 2.8% over the same time period. Collectively the three Almanac Investor Stock Portfolios declined 0.4%. Our Mid-Cap stocks performed best, gaining 0.7%. Large-Caps brought up the rear with a 0.8% loss, just a tick worse than Small-Caps which declined 0.7%. Small-cap stocks in general have been having a tough summer this year, but one bright spot in our portfolio is Global Brass and Copper Holdings (BRSS). It traded at a new 52-week high last in late June, spent July consolidating and then blasted through monthly resistance last Friday following a respectable second quarter earnings report that included an increase in full-year 2015 guidance. BRSS is on Hold.
At the other end of the small-cap performance spectrum is Omnicell (OMCL). After running from the mid-twenties last September to over $40 per share in July, it sold off hard when it released earnings on the 30th. Year-over-year revenue was acceptable however; sequentially it was slightly lower than the first quarter and margins also shrunk. OMCL is also on Hold.
SkyWest (SKYW), a short-trade idea, reported better than expected earnings on July 30 after shares touched briefly touched $13.61. The initial pop of the beat stuck and shares continued to climb to close above SKYW’s stop loss. As a result, SKYW was closed out of the portfolio on August 5 for a 5.2% loss.
Long holdings in both the Mid- and Large-Cap portions of the Stock Portfolio continue to perform well with two exceptions. Allstate (ALL) was stopped out on August 4 for a final gain of 47.8% following a dreadful earnings report. Although Southern Copper (SCCO) did not get stopped out on July 23 it did close below its stop loss the following day. Broad materials sector weakness due to tepid global demand and a firm U.S. dollar were the main culprits.   
Earlier in July a basket of 14 stocks that we believed were excellent candidates to short was presented. All stocks in this basket have now been traded, but a few have already been stopped out. In addition to SKYW, Colgate Palmolive (CL) was stopped out on July 28 when it closed above $68.10. CL looks like it is ready roll over, but its familiar name and dividend are likely comforting to some traders and investors limiting any substantial downside moves.
Bluebird Bio (BLUE) is the best performing short trade idea to date with a 9.0% profit as of yesterday’s close. It was also the most overvalued of the basket with a market valuation of over $5 billion on just $24 million of revenue over the past year. All it took was a bit of broad biotech weakness coupled with a second quarter earnings report that suggested the company would be mostly just burning through cash from now through 2018. BLUE could easily be cut in half from current levels and still be overvalued. BLUE is on Hold
All other positions, not specifically mentioned above, are on Hold. See table below for updated Stop Losses.  
[Almanac Investor Stock Portfolios – August 10, 2015 Closes]
Disclosure Note: At press time, officers of the Hirsch Organization, or the accounts they control, did not hold any positions in the stocks mentioned in this article. 
ETF Trades: Consumer Spending Expected to Pick Up Soon
By: Christopher Mistal
August 06, 2015
Historically speaking, the consumer sector tends to begin its favorable period near the end of September and typically remains strong until the beginning of June in the following year. Back-to-school and holiday spending combined with the effects of the “Best Six Months” is the most likely driving force behind this seasonality. Like the broader market, the consumer sector has been struggling since its March/April highs. An unusually long and harsh winter deterred shoppers early in the year and summer vacations have likely tempered sales recently. Second quarter GDP was lighter than expected at 2.3%, but consumer spending was a bright spot. When winter ended shoppers did indeed return to stores; this leaves little reason to expect differently when summer vacations begin to wind down over the next 4-6 weeks.
Based upon the no-longer-calculated Morgan Stanley Consumer Index (CMR), this trade had produced an average 10.4% gain over the last 15 years. A similar seasonality and average returns exists when the S&P Retail Index (RLX) is analyzed. Last year’s two ETF trades based upon this seasonality returned an average of 11.5%. A two-pronged approach to trade this seasonality will be utilized. We already hold one consumer staples related fund in the Almanac Investor ETF Portfolio and will look to add exposure to discretionary spending on pullbacks over the next few weeks.
[S&P Retail Index (RLX) Weekly Bars and Seasonal Pattern Since July 1998 Chart]
New Trades for September Seasonalities
SPDR Retail (XRT) can also be purchased on pullbacks using a buy limit of $92.10. Set a stop loss at $82.89 and take profits at the auto sell at $111.85. Top five holdings: Netflix,, Nutrisystem, Expedia and Priceline. XRT is widely diversified and these five companies represent just 6.14% of XRT’s total holdings. As of August 5 retail apparel companies were nearly 24% of the fund and specialty stores were second largest, comprising slightly more than 16% of total fund assets. XRT has nearly $1 billion in assets, trades nearly 2 million shares a day and has a gross expense ratio of just 0.35% making it a perfect choice to trade this seasonality.  
[SPDR Retail (XRT)]
Oil’s historically weak seasonality also begins in September and is based upon the AMEX Oil index (XOI). MACD, stochastic and relative strength indicators applied to XOI are all negative and have been so since early May. But, sentiment for this sector is heavily bearish already suggesting the majority or even all of the decline may have already taken place. Aggressive traders may consider Direxion Energy Bear 3x (ERY) or ProShares UltraShort Oil & Gas (DUG) to take advantage of the sector's recent volatility however, no official trade idea is going to be presented at this time.
ETF Portfolio Updates
Holdover positions in SPDR Consumer Staples (XLP) and SPDR Healthcare (XLV) have been doing exactly what history and seasonality suggested they would do doing the “Worst Months,” they have continued their slow climb higher. XLP and XLV have both made new 52-week highs in recent trading sessions and are on Hold. 
HDGE, TLT and AGG, also part of our “Worst Months” defensive strategy, are still modestly lower since being added to the portfolio, but all have gained ground recently. When dividends are factored in, TLT and AGG become essentially unchanged. With further market weakness expected, HDGE, TLT and AGG are on Hold.
As of yesterday’s close, SPDR Materials (XLB) was the best performing ETF shorted back in May with a 10.6% gain. iShares DJ Transports (IYT) was lower, but has since bounced higher on the prospect of lower energy costs eventually leading to additional profits. Perhaps, but last time I looked shipping volumes were still falling so revenues are also likely to be still declining. Falling revenues are more likely to offset any boost that is produced by lower energy costs. SPDR Financial (XLF) looks like it could easily go either way right now. A lot of people are bullish for the sector in anticipation of all the money it might make if interest rates and the yield curve steepen, but at the same time it has been a long wait and other areas of the market are beginning to long more attractive. If the Fed does not raise rates in September, this could be the catalyst that begins to unravel the financial sector. XLB, IYT and XLF are also on Hold.
Swept up in the recent commodity rout, PowerShares DB Agriculture (DBA) and First Trust ISE-Revere Natural Gas (FCG) were both stopped out since last update on July 21. DBA was closed out for a modest 3.9% loss and FCG was closed out at a 9.8% loss. 
IBB, IYW, UNG and JO trade ideas remain unfilled. For the time being their respective buy limits remain unchanged. There is no reason to chase especially when they appear to be headed lower in the short-term. IBB, IYW, UNG, JO and GLD can be considered on dips below their respective buy limits.
Although it appears that we have overstayed the late-July S&P 500 short-trade by still holding ProShares UltraShort S&P 500 (SDS), the market is having a tough time during the first nine trading days of August. Continue to Hold SDS. We will look to exit this position sometime in the next five trading days.
See table below for updated stop losses.
[Almanac Investor ETF Portfolio – August 5, 2015 Closes]
Disclosure Note: At press time, officers of the Hirsch Organization, or accounts they control did not hold any position in the ETF’s mentioned above.
Seasonal Sector Trades: Looking for Coffee and Gold to Bounce
By: Christopher Mistal & Jeffrey A. Hirsch
August 04, 2015
Coffee typically tends to start a seasonal bottoming process before distributors begin buying ahead of anticipated demand in the upcoming cold winter months. This is the time to cover the best seasonal trade short position from May. It is also a time to look for a short-term trade opportunity on the long side. 
Traders can look to enter a new long position on or about August 18 and hold this position until about September 4. The trade usually ends right around Labor Day (yellow shaded box below), but coffee prices can continue to head higher as they did last year. This trade has worked 27 times in the last 41 years, for a success rate of 65.9%. After posting a gain every year from 1986 to 1997, this trade has had a spotty record of late, successful in just nine of the last 17 years.
[August Long Coffee (December) Trade History Table]
Coffee has increased in popularity on an international scale in the last few decades. Most consumption has been from the United States, parts of Europe, and Canada. Many Europeans have switched from tea to coffee and with the introduction in late 2005 of Starbucks coffee in Europe and in Asia. Demand is improving, especially for higher grade and quality coffee. With increasing global consumption habits, if there are threats of supply disruptions or production declines for higher grade coffee, the futures market can be prone to extreme price moves.
Coffee was the top-performing commodity in 2014 as weather and disease combined to threaten supplies. Those concerns eased in October last year and coffee’s price has been falling since and is currently trading right around its 52-week low which is not far above its multi-year lows touched in November of 2013. A strong U.S. dollar and a weak Brazilian real (top coffee producer and exporter) are also keeping coffee’s price in check for now, so this time around coffee’s seasonal move higher could be muted. 
[Coffee (KC) Weekly Bars and Seasonal Trend Chart]
Outside of the futures market several choices exist to trade coffee’s seasonal move. iPath DJ-UBS Coffee Sub-Idx TR ETN (JO) is the top choice. Unlike an ETF, JO is an exchange-traded note that is designed to track the DJ-UBS Coffee Subindex Total Return which reflects the potential returns available through an unleveraged investment in futures contracts on coffee. JO has sufficient liquidity trading around 160,000 shares per day over the past three months with a market capitalization of right around $100 million. A long position in JO could be considered on dips below $20.60. If purchased, a stop loss at $19.10 is suggested. For tracking purposes, this trade idea will appear in the Almanac Investor ETF Portfolio.
[iPath DJ-UBS Coffee TR Sub-Idx ETN (JO) Daily Bar Chart]
Will Gold Glitter Midsummer
Seasonally, there is a strong price period for gold (shaded in yellow in chart below) from late August until late September or early October 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. Entering long positions on or about August 26 and holding until October 1 has worked 23 times in the last 40 years for a success rate of 57.5%. In the 18 years since 1996, this trade has been profitable 13 times with a cumulative potential profit of $18,640 per single futures contract. Sizable losses were suffered in 2011, 2013 and 2014; however this trade’s best performance ever was in 2012.
[August Long Gold (December) Trade History Table]
[Gold (GC) Weekly Bars and Seasonal Trend Chart]
Gold got off to a great start early in 2015, briskly rallying from under $1200 per ounce to over $1300 in just three weeks, but the move was short-lived and gold was back under $1200 by early March. From then until early July that is where gold remained until collapsing through $1100 at the end of July. Gold is now at its lowest price since early 2010. Because of recent price declines investment demand is weak however, physical demand appears to be holding up with numerous gold coin and bullion collecting friends reporting that they have been taking advantage of the lower price to increase their own stockpiles. Perhaps a similar scenario will unfold this upcoming holiday season. 
[SPDR Gold (GLD) Daily Bar Chart]
SPDR Gold (GLD) is an easy and cost effective way to execute this trade. It has over 21 million ounces of gold worth over $23 billion backing it and tracks in excess of 5 million shares daily. Stochastic, relative strength and MACD indicators applied to GLD appear to be turning led by a buy signal in MACD. GLD can be considered at current prices up to a buy limit of $104.75. If purchased, an initial stop loss of $99.95 is suggested. This trade idea will also be tracked in the Almanac Investor ETF Portfolio.