8/25/2022: Dow 33291.78 | S&P 4199.12 | NASDAQ 12639.27 | Russell 2K 1964.64 | NYSE 15595.24 | Value Line Arith 9073.23

 

Seasonal: Bearish. September is the worst DJIA, S&P 500, NASDAQ, Russell 1000, and Russell 2000 month of the year by average performance. Average declines range from –0.5% to –0.7%. Midterm-year Septembers have been mixed notwithstanding a modest improvement in rank. DJIA has declined in 11 of the last 18 midterm-year Septembers. End-of-quarter window dressing and rebalancing has contributed to some nasty, late-September selloffs.

 

Fundamental: Recession? Two consecutive quarters of GDP decline and a partially inverted Treasury yield curve suggest a recession. Even though debate officially continues, the second estimate of Q2 GDP was still negative with a minor positive revision. Housing is cooling and signs of labor market weakness are also appearing as additional companies announce plans to slow or stop hiring or outright cut head count. Signs of moderating inflation exist but headline readings of CPI and PPI remain elevated.

 

Technical: Resistance Hit? DJIA, S&P 500 and NASDAQ all blazed past their respective early June highs only to fail to reclaim and in the case of DJIA hold their 200-day moving averages. All three have retreated to right around the June highs. Previous resistance can become support. Should that support fail then their respective 50-day moving averages would become the next key level to watch. Currently these levels are around DJIA 32000, S&P 500 3990, and NASDAQ 11900 and rising. A decisive move back up and through their 200-day moving averages would be bullish in the near-term.

 

Monetary: 2.25 – 2.50%. Will Fed representatives tell the market what it wants to hear this week at Jackson Hole? We will find out soon enough, but it would seem the hope of a less hawkish Fed, which contributed to the summer rally, is being increasingly questioned. The Fed has aggressively increased its target rate this year however CPI remains well above the Fed’s stated 2% target. QT (quantitative tightening), currently around $47.5 billion per month is scheduled to double to $95 billion on September 1. This could add additional upward pressure on interest rates.

 

Sentiment: Neutral. According to Investor’s Intelligence Advisors Sentiment survey Bullish advisors stand at 45.1%. Correction advisors are at 25.3% while Bearish advisors numbered 29.6% as of their August 24 release. Bulls have outnumbered bears for five weeks now, but outright bullish sentiment remains rather subdued as the combination of bears and correction still outnumber the bulls. Until the market clearly demonstrates a direction again, sentiment is likely to remain essentially neutral.

 

While the folks at the Fed convene their annual symposium this week at Jackson Lake Lodge in the Wyoming wilderness fishing for answers on the economy and its next policy moves Jeff reports in from the woods and beaches in Ogunquit, Maine. He did not come across any bears on the morning hike along the Ogunquit River, but the level of tourist activity here is suspiciously slow. 

 

Maine’s popular southern coast is not dead, but the crowds are smaller, wait times at happening restaurants are short and beach parking spots are not too hard to come by. But the lobstah is still wicked good and the surfing is still consistently ridable. The scene up here this year is emblematic of the economic situation in the U.S. – tepid and slower than usual, but not collapsing. 

 

The summer rally so far has been impressive, but we are not out of the woods yet. The major averages have stalled at their respective 200-day moving averages, a key technical level, and are now testing new short-term support around the June highs and the 50-day moving averages. Market internals are still not convincingly bullish. This week’s Down Friday/Down Monday with Monday’s loss the biggest since June is also a warning sign. 

 

The second estimate of Q2 GDP was revised a little higher though still negative from –0.9% to –0.6%. Atlanta Fed’s GDPNow latest estimate for Q3 was a tad lower this week down to 1.4% from 1.6% last week and the high of 2.5% mid-month. Sentiment has also improved throughout the summer rally, but where the market moves next is really all about inflation and the Fed.

 

With history as our guide and current readings tame, we are inclined to heed the seasonal cautions that surround worst-month-of-the-year September and the Weak Spot of the 4-year cycle. We also still have the battles of the midterms, end of Q3 quarterly reshuffling pressures and October-phobia to contend with. 

 

As you can see in our brand-new Stock Trader’s Almanac Aggregate Cycle index (STAAC) revealed earlier this month the seasonals and cycles point to a continued pullback into the end of September. STA Aggregate Cycle is a combination of the 1-Year Seasonal Pattern for All Years, the 4-Year Presidential Election Cycle and the Decennial Cycle. In the chart here STAAC is all years, midterm years and second years of decades post-WWII from 1946-2021.

 

 

Should the next readings on inflation not show continued abatement and should the Fed’s statements this week in Jackson Hole, over the next several weeks and in the next FOMC policy release be more hawkish than The Street has been pricing into the summer rally we could take out the June lows.

 

The more likely scenario from our vantage point is for a retest of the June lows with a slightly higher low at some point in September or October. Then we look for a new cyclical bull market to gather momentum in the Sweet Spot of the 4-year cycle from Q4 midterm year to Q2 pre-election year. 

 

So, while we await to hear what the Fed has to say and see what they do with rates at the next FOMC meeting on September 21 (A meeting associated with a Summary of Economic Projections) and for the next inflation readings (CPI on September 13 and PPI September 14) we are going to stick to our system and seasonal strategy and wait for better bullish signals and the Sweet Spot of the 4-Year Cycle.

 

 

DJIA’s summer rally off the June lows continued into August. As of the close on August 24, DJIA was up 10.3% which is slightly above historical average performance since 1964 of 9.4%. During the rally, DJIA did briefly reclaim its key 200-day moving average (1) but failed to hold it as hope for a quick shift in Fed interest rate policy appeared to fade. Recent weakness is being confirmed by both the faster and slower MACD indicators applied to DJIA (2) flashing sell signal crossovers on August 22.

 

 

On Monday, DJIA’s worst daily decline since June completed its tenth Down Friday/Down Monday (DF/DM) of the year (3). Historically, DF/DM occurrences have occurred at inflection points and have traditionally signaled a reduction in confidence as traders become reluctant to carry positions over the weekend and perceive little reason to go long at the start of the new trading week. If DJIA can quickly recover its losses from Monday and Friday, then the odds of additional declines sometime during the next 90 calendar days also decline. However, should it fail, further weakness becomes increasingly likely.

 

DJIA (3), S&P 500 (4) and NASDAQ (5) did finish July with back-to-back weekly gains. S&P 500 and NASDAQ went on to extend their weekly winning streaks to four in a row, DJIA did not. Since the June lows, DJIA has advanced in five of the last nine weeks while S&P 500 and NASDAQ have risen in six of those weeks. These are solid streaks that have produced solid gains but there still appears to be an elevated amount of uncertainty confronting the market.

 

NYSE Weekly Advancers and Weekly Decliners (6) have been consistent with the market’s overall move higher and also suggest there was fairly broad participation in the rally with Advancers solidly outnumbering Decliners in positive weeks. This week’s weakness may produce a mixed reading that could be yet another reason to question the validity of the recent rally.  

 

Despite the rebound off June’s lows, Weekly New Highs (7) have remained low. There has been some modest improvement but at just over 100 New Highs per week over the last three weeks it’s a grim reminder of just how far many stocks have fallen this year. Given the magnitude of the rally, the number of New Weekly Lows has retreated nicely and is currently at the lowest number of 2022. Until the market breaks one way or the other, both New Highs and New Lows are likely to remain relatively subdued.

 

The 90-day Treasury yield (8) has climbed to its highest level in August since January 2008 while the 30-year Treasury yield has eased from its mid-June peak at 3.38%. The higher near-term rate is consistent with the Fed’s inflation-fighting tightening of monetary policy while falling long-term rates would seem to suggest slipping growth potential and an eventual and meaningful decline in inflation. The partially inverted Treasury yield curve has also been a precursor to recession which is still apparently up for debate despite two consecutive quarters of negative U.S. GDP.

 

 

Since 1950, September is the worst performing month of the year for DJIA, S&P 500, NASDAQ (since 1971), Russell 1000 and Russell 2000 (since 1979). September was creamed four years straight from 1999-2002 after four solid years from 1995-1998 during the dot.com bubble madness. Although September’s overall rank improves modestly in midterm years going back to 1950, average losses widen for DJIA (–0.8%), NASDAQ (–0.8%), Russell 1000 (–1.0%) and Russell 2000 (–0.8%). S&P 500’s average September loss improves slightly from –0.5% to –0.4% in midterm years. Although September 2002 does influence the average declines, the fact remains DJIA has declined in 11 of the last 18 midterm-year Septembers.

 

 

Although the month used to open strong, S&P 500 has declined nine times in the last fourteen years on the first trading day. 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. This has caused 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%).

 

 

September Triple Witching week is generally bullish with S&P 500 advancing nearly twice as many times as declining since 1990 but is has suffered some sizable losses. Triple-Witching Friday was essentially a sure bet for the bulls from 2004 to 2011 but has been a loser seven or eight of the last ten years, depending on index with S&P 500 weakest, down nine of the last ten. The week after Triple Witching has been brutal, down 25 of the last 32, averaging an S&P 500 loss of 0.89%. 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 Wednesday after the holiday as opposed to the days before. DJIA has gained in 20 of the last 27 Wednesdays following Labor Day. Tuesday after Labor Day also leaned bullish, but DJIA has declined on 10 of the last 14.

 

 

 

Or in this case, “Is the Bottom In?”

 

As the U.S. stock market has been staging an impressive comeback rally off the June lows, pushing through technical resistance at the June highs we’ve taken a long hard look at our indicators and cycles. Our analysis is still for further weakness and another leg down that culminates in a lower low or retest of the lows at some point in the weak seasonal period August-October ahead of the midterm election.

 

But we are reminded of the wisdom in the Almanac quotations, particularly this one from billionaire businessman John Malone: “Moses Shapiro (of General Instrument) told me, “Son, this is Talmudic wisdom. Always ask the question ‘If not?’ Few people have good strategies for when their assumptions are wrong.” That’s the best business advice I ever got.”

 

With the summer rally pushing DJIA up 11.4% from the June low with S&P up 14.8% and NASDAQ up 20.7% here’s what we are looking at. This week’s inflation numbers were certainly encouraging. But we would like to see further confirmation before moving into the bullish camp. We are bullish for Q4 and 2023 but remain vigilant about the potential for another leg down that either tests the June lows or makes a new low.

 

In preparation for the 2023 Stock Trader’s Almanac, we developed this brand-new Stock Trader’s Almanac Aggregate Cycle index (STAAC). And you, our most loyal newsletter subscribers are the first to see it. STA Aggregate Cycle is a combination of the 1-Year Seasonal Pattern for All Years, the 4-Year Presidential Election Cycle and the Decennial Cycle. In the chart here STAAC is all years, midterm years and second years of decades post-WWII from 1946-2021. 

 

 

2022 uses the right axis scale and STAAC is on the left. While 2022’s decline is clearly much deeper, the trend and shape are remarkably close to 2022. Should 2022 continue to track this STAAC trend we are nearing the end of the summer rally and due for a slide into the end of September at a higher low before the quadrennial “Sweet Spot” rally from Q4 midterm year to Q2 pre-election year commences. 

 

This scenario also correlates to the Mamis Sentiment Cycle we presented in the August Outlook. It would suggest we have passed the Panic point and are on the other side of Discouragement and climbing the Wall of Worry toward Anxiety before a higher low at Aversion. 

 

Also updated here are the other analogs to previous midterm years we have been tracking throughout the year. Apart from the 2nd Year of New Democratic President’s and the 1974 lines they all suggest the June low was the bottom. 

 

 

 

All our research indicates that we are on the cusp of another leg down. The question remains whether we make a higher low or take out the June low. We still have concerns, so prudence demands that we hold off on issuing the “all clear” until we have further confirmation that the recent easing of inflation readings is not temporary. The correlation between 2022 and 1962 looks to be closest as is the analogy to our new STAAC pattern, which suggests a close retest of the June lows.

 

Oil prices and inflation level are quite closely correlated, and both exhibit a downward seasonal trend during the summer months. Several more weeks of data could easily reveal inflation has not eased as much as everyone has hoped and we would not be surprised to see $120 oil again ahead of winter with war in Ukraine dragging on and the prospects of an energy squeeze in Europe that carries over globally.

 

On the positive side we have: the pullback in inflation this month, a technically strong rally that has pushed through resistance at the June highs, a healthy bounce in sentiment, an upward trending Advance/Decline line and a Q3 Advance GDP forecast from the Atlanta Fed’s GDPNow model of 2.5% as of August 10. 

 

On the contrary opinion front there are too many folks riding on the weak seasonality and midterm cycle bandwagon looking for a classic midterm October bear market bottom for it to happen. That does not mean lower lows are off the table it is just not likely to happen as most people expect.

 

On the negative side of the ledger, we see: the potential for a contentious midterm election season, Ukraine, China, Iran, persistently high inflation with this month’s dip being temporary, a spike in oil from seasonal and geopolitical factors, weak seasonality, high valuations, a rather overbought condition, and the potential for the Fed to remain aggressive raising interest rates.

 

Recent market action and inflation readings have made a better case for the bear market bottom to be in. But in our view, it is still too early jump into the bull camp. The market continues to face several hurdles and this rally has gotten ahead itself and has been built on hope. At these levels risk is high again and we prefer to wait for our indicators and cycles to give us better readings before we go all in bullish.

 

 

Over the last four weeks since last update through yesterday’s close, S&P 500 jumped 10.7% higher while Russell 2000 advanced 14.1%. Over the same time period the entire stock portfolio inched 0.1% higher, excluding dividends and any fees. The cash portion of the portfolio has climbed to 86% now which greatly limited the portfolio’s performance during the current rally. In June the cash did limit the portfolios downside to just 0.2%. So even though the portfolio did not fully benefit from the current rally, it still remains closer to its highwater mark reached in December 2021 than the market.

 

Broad strength over the last four weeks did lift most of the stocks held in the portfolio. Two exceptions were AT&T (T) and Verizon (VZ). Both positions were originally added due to their sizable dividends and relatively stable prices. However, both T and VZ have struggled to keep pace with their competitor T-Mobile in the 5g buildout. As a result of waning investor interest, VZ was stopped out on July 22 at a 12.9% loss excluding dividends and any trading fees. T remains on Hold. T is facing many of the same headwinds as V, but analyst’s opinions do appear more favorable. 

 

Per last months’ update, Warner Brothers Discovery (WBD) was closed out of the portfolio on July 15 using its average price on that day. WBD did have a brief rally in early August, but as of today, it is still trading below the price it was closed out at in July. Streaming competition appears to be quite fierce, and the value currently being offered versus traditional sources also appears to be shrinking.

 

Although not originally added to the portfolio for its dividend, Atlantic Union Bankshares (AUB) recently announced a dividend increase from $0.28 to $0.30 (a 7.1% increase) which will be paid on August 26. This increase results in a dividend yield of approximately 3.5%. AUB is on Hold.

 

MGP Ingredients (MGPI) continues to climb higher as it has been doing for most of the year. Earlier this week on Monday, MGPI reached another new 52-week high. Sales and earnings both beat estimates for the most recent quarter. MGPI is on Hold and its stop loss has been increased. 

 

All other positions are on Hold. Please see the table below for updated stop losses and current advice for positions not covered above.

 

 

July’s employment situation report, normally released on the first Friday of August, has largely been a market disappointment over the last twenty-one years. DJIA, S&P 500, NASDAQ, Russell 1000 and Russell 2000 have all declined a majority of the time. Average, historical performance on the day has been negative with NASDAQ declining the most on average, off 0.50%. Median performance is similar to average performance confirming weakness is not due to one or more outliners. Modest strength in seven of the last ten years has improved average performance as the prior eleven-year stretch was nearly all bearish.

 

 

Consensus estimates for tomorrow’s jobs report are expecting 258,000 net new jobs were added in July. Excluding the losses reported in December 2020 and during the Covid-19 pandemic shutdown, this would be the fewest number of jobs since December 2019. This soft expectation for July does appear to be in line with the trend in weekly initial claims data that was released earlier today. Weekly initial claims were reported at 260,000 for the week ending July 30. This is nearly 100,000 more than were reported during March of this year. This trend also appears consistent with news of companies curtailing hiring and/or downsizing labor.

 

Historically, unemployment has been one of the last data points to rollover as the economy slipped into an official NBER recession. Although not officially there yet, employment data does appear to be trending in that direction making tomorrow’s jobs report all that much more significant. Better than expected numbers could easily keep the market’s current rally going while the opposite would only further tip the scales toward a recession. Given the full month of August has a tumultuous history a cautious stance still appears to be the prudent position at this time.

 

 

Although two new bullish sector trades begin in August, we will take a vigilant approach. Both new long trade ideas are suggested on dips. This is consistent with our near-term view that the market is likely to endure some additional weakness during the balance of the third quarter and possibly into Q4. We are also still looking for and awaiting a typical midterm bottom ahead of the Sweet Spot of the four-year cycle.

 

Biotechnology sector enters its historical favorable season in August. iShares Biotech (IBB) could be considered on dips below a buy limit of $112.00. An initial stop at $98.50 is suggested. The auto sell is $139.83 based upon historical average performance. A 13.5% average gain has occurred over the last 15 years while an average gain of 10.4% has taken place the most recent 5 years. Top five holdings are: Amgen, Gilead Sciences, Vertex Pharmaceuticals, Moderna and Regeneron Pharmaceuticals.

 

 

Over the last 15 years, High-Tech has generated an average return of 11.2%, and for the last five years the average has been a solid 17.6% during its bullish season from mid-August to mid-January. Our top ETF within this sector is iShares DJ US Technology (IYW). Set a buy limit of $85.75 and an initial stop loss of $77.18 if purchased. Should high-tech produce above average gains, profits will be taken at the auto sell of $104.89. IYW’s top five holdings are: Apple, Microsoft, Alphabet Class A & C shares and Nvidia. These five holdings represent 50.52% of IYW’s total holdings. Despite a challenging year thus far, technology is likely to resume its leadership role later this year.

 

 

August’s final new trade idea is a short trade in the Semiconductor sector. Over the past 15 years the Semiconductor index (SOX) has declined on average 3.8% from the middle of August through the end of October. More recently, over the last five years this trade has not been all that successful with an average 0.7% gain. The combination of reported chips shortages and a consumer cutting back on discretionary spending makes it difficult to predict where the sector goes next, but worldwide shipments of PC, tablet and mobile phone chips are forecast to decline this year.

 

Given the elevated level of uncertainty currently shrouding the semiconductor sector, we are going to avoid using a leveraged, inverse ETF and instead consider establishing a short position in iShares Semiconductor (SOXX) near resistance at $432.00 or on a breakdown below $400.00. If shorted near resistance set an initial stop at $444.96, if shorted on a breakdown set a stop at $412.00. Top five holdings of SOXX are: Nvidia, Broadcom, Intel, Texas Instruments and Advanced Micro Devices. 

 

 

 

The summer doldrums and the worst two-month span (August-September) of the year have arrived. Thus far it doesn’t really look or feel like it with the market maintaining its sizable gains from July. Last month’s trade ideas shorting the transport and industrial sectors have been added to the portfolio. iShares Transportation (IYT) was shorted on July 28 when it traded below $226.25. SPDR Industrials (XLI) was shorted the prior day when it traded above $92.10. Currently both positions are modestly underwater as they continue to creep higher.

 

Recent declines in crude oil price have undoubtedly contributed to recent strength in transports and industrials, but energy supplies remain tight and spare capacity is still limited. This suggests persistent energy declines are not highly likely. With a rebound in energy prices possible, we are going to increase the stop loss on the short IYT position to $240.00. Since all stops are based upon closing price, we will not close out IYT unless it closes above this new stop loss.

 

SPDR Biotech (XBI) has rebounded nicely since last update. XBI is a long-term holding that we entered into a few months early. Nonetheless the increased awareness and focus on health and contagious disease that has transpired alongside Covid-19 is a continuous reminder of the importance and potential impact the sector can and does have on everyday life. With the arrival of biotech’s favorable season, XBI can be considered on dips below $78.20.

 

Please see table below for current advice, updated buy limits and stop losses.

 

 

 

Although the debate continues as to whether or not the U.S. is in recession, Q1 and Q2 GDP readings were negative, and the Fed appears to be slightly less hawkish when it comes to future interest rate hikes. As a result Treasury bond yields have declined and the prices of TLT, AGG and BND have improved. Excluding dividends and trading costs, all three positions are modestly in the red. Should recession fears be supported by weakening economic data, TLT, AGG and BND could quickly improve further. TLT, AGG & BND are on Hold.

 

 

July’s employment situation report, normally released on the first Friday of August, has largely been a market disappointment over the last twenty-one years. DJIA, S&P 500, NASDAQ, Russell 1000 and Russell 2000 have all declined a majority of the time. Average, historical performance on the day has been negative with NASDAQ declining the most on average, off 0.50%. Median performance is similar to average performance confirming weakness is not due to one or more outliners. Modest strength in seven of the last ten years has improved average performance as the prior eleven-year stretch was nearly all bearish.

 

 

Consensus estimates for tomorrow’s jobs report are expecting 258,000 net new jobs were added in July. Excluding the losses reported in December 2020 and during the Covid-19 pandemic shutdown, this would be the fewest number of jobs since December 2019. This soft expectation for July does appear to be in line with the trend in weekly initial claims data that was released earlier today. Weekly initial claims were reported at 260,000 for the week ending July 30. This is nearly 100,000 more than were reported during March of this year. This trend also appears consistent with news of companies curtailing hiring and/or downsizing labor.

 

Historically, unemployment has been one of the last data points to rollover as the economy slipped into an official NBER recession. Although not officially there yet, employment data does appear to be trending in that direction making tomorrow’s jobs report all that much more significant. Better than expected numbers could easily keep the market’s current rally going while the opposite would only further tip the scales toward a recession. Given the full month of August has a tumultuous history a cautious stance still appears to be the prudent position at this time.

 

 

Although two new bullish sector trades begin in August, we will take a vigilant approach. Both new long trade ideas are suggested on dips. This is consistent with our near-term view that the market is likely to endure some additional weakness during the balance of the third quarter and possibly into Q4. We are also still looking for and awaiting a typical midterm bottom ahead of the Sweet Spot of the four-year cycle.

 

Biotechnology sector enters its historical favorable season in August. iShares Biotech (IBB) could be considered on dips below a buy limit of $112.00. An initial stop at $98.50 is suggested. The auto sell is $139.83 based upon historical average performance. A 13.5% average gain has occurred over the last 15 years while an average gain of 10.4% has taken place the most recent 5 years. Top five holdings are: Amgen, Gilead Sciences, Vertex Pharmaceuticals, Moderna and Regeneron Pharmaceuticals.

 

 

Over the last 15 years, High-Tech has generated an average return of 11.2%, and for the last five years the average has been a solid 17.6% during its bullish season from mid-August to mid-January. Our top ETF within this sector is iShares DJ US Technology (IYW). Set a buy limit of $85.75 and an initial stop loss of $77.18 if purchased. Should high-tech produce above average gains, profits will be taken at the auto sell of $104.89. IYW’s top five holdings are: Apple, Microsoft, Alphabet Class A & C shares and Nvidia. These five holdings represent 50.52% of IYW’s total holdings. Despite a challenging year thus far, technology is likely to resume its leadership role later this year.

 

 

August’s final new trade idea is a short trade in the Semiconductor sector. Over the past 15 years the Semiconductor index (SOX) has declined on average 3.8% from the middle of August through the end of October. More recently, over the last five years this trade has not been all that successful with an average 0.7% gain. The combination of reported chips shortages and a consumer cutting back on discretionary spending makes it difficult to predict where the sector goes next, but worldwide shipments of PC, tablet and mobile phone chips are forecast to decline this year.

 

Given the elevated level of uncertainty currently shrouding the semiconductor sector, we are going to avoid using a leveraged, inverse ETF and instead consider establishing a short position in iShares Semiconductor (SOXX) near resistance at $432.00 or on a breakdown below $400.00. If shorted near resistance set an initial stop at $444.96, if shorted on a breakdown set a stop at $412.00. Top five holdings of SOXX are: Nvidia, Broadcom, Intel, Texas Instruments and Advanced Micro Devices. 

 

 

 

The summer doldrums and the worst two-month span (August-September) of the year have arrived. Thus far it doesn’t really look or feel like it with the market maintaining its sizable gains from July. Last month’s trade ideas shorting the transport and industrial sectors have been added to the portfolio. iShares Transportation (IYT) was shorted on July 28 when it traded below $226.25. SPDR Industrials (XLI) was shorted the prior day when it traded above $92.10. Currently both positions are modestly underwater as they continue to creep higher.

 

Recent declines in crude oil price have undoubtedly contributed to recent strength in transports and industrials, but energy supplies remain tight and spare capacity is still limited. This suggests persistent energy declines are not highly likely. With a rebound in energy prices possible, we are going to increase the stop loss on the short IYT position to $240.00. Since all stops are based upon closing price, we will not close out IYT unless it closes above this new stop loss.

 

SPDR Biotech (XBI) has rebounded nicely since last update. XBI is a long-term holding that we entered into a few months early. Nonetheless the increased awareness and focus on health and contagious disease that has transpired alongside Covid-19 is a continuous reminder of the importance and potential impact the sector can and does have on everyday life. With the arrival of biotech’s favorable season, XBI can be considered on dips below $78.20.

 

Please see table below for current advice, updated buy limits and stop losses.

 

 

 

Although the debate continues as to whether or not the U.S. is in recession, Q1 and Q2 GDP readings were negative, and the Fed appears to be slightly less hawkish when it comes to future interest rate hikes. As a result Treasury bond yields have declined and the prices of TLT, AGG and BND have improved. Excluding dividends and trading costs, all three positions are modestly in the red. Should recession fears be supported by weakening economic data, TLT, AGG and BND could quickly improve further. TLT, AGG & BND are on Hold.