December 2015 Trading & Investment Strategy

By:

November 24, 2015

Market at a Glance - 11/24/2015

By: Christopher Mistal

November 24, 2015

Psychological: Skeptical. On the heels of the rebound, last week’s Investors Intelligence Advisors Sentiment survey showed bulls at 43.3%, bears at 26.8% and correction at 29.9%. This is still essentially a neutral reading. Recent terror attacks, the threat of more and today’s downing of a Russian fighter plane by Turkey are surely dampening typical holiday cheer that usually begins to kick in around this time of the year. Despite all the valid concerns and worries, the market is holding up. As worries and concerns begin to fade, there is room for the market to drift higher until it nears resistance just below previous record highs.

Fundamental: Mixed. Third quarter U.S. GDP was revised higher today, but it was still a substantial slowdown from Q2. Inventories are flush and are likely to be a drag on Q4. Corporate revenues and earnings are also down from year-ago levels for many companies. However, the labor market remains reasonably firm with solid monthly gains in payrolls along with low initial weekly jobless claims. Lower energy prices and improving wages are freeing up cash for consumers, unfortunately many are choosing to save the windfall rather than spend it as the savings rate climbed to 5.2% in Q3.

Technical: Range bound. After an October for the record books, DJIA, S&P 500 and NASDAQ now appear to be settling back into trading ranges quite similar to where they were prior to the August correction. The top of the range is just below previous record highs while the lower end is just below 200-day moving averages. DJIA, S&P 500 and NASDAQ are likely to wonder around inside this range until the Fed meets again in mid-December and possibly longer should geopolitics further sour.

Monetary: 0-0.25%. A December rate hike is still less than certain. The Fed seems reasonably comfortable with the state of the U.S. labor market and economic growth (even though it remains less than spectacular). Tepid inflation and the risk of deflation seem to be the only real concern the Fed has. At this point, the best thing the Fed could do might just be to go ahead and start the tightening cycle and put an end to that part of interest rate uncertainty.

Seasonal: Bullish. December is the number one S&P 500 month and second best for DJIA since 1950, averaging gains of 1.7% on each index. It’s also the top Russell 2000 (1979) month and second best for NASDAQ (1971) and Russell 1000 (1979). Rarely does the market fall precipitously in December. In pre-election years, December’s overall ranking remains about the same across the board however, average gains improve handsomely. DJIA averages 3.0%, S&P 500 3.2%, NASDAQ 4.9%, Russell 1000 3.5% and Russell 2000 4.0%. The “January Effect” of small-cap outperformance starts early in mid-December. Wall Street’s only “Free Lunch” of distressed small- and micro-cap stocks making new 52-week lows on December Triple-Witching Friday will be served before the opening bell on December 21. Santa’s Rally begins on Thursday December 24 and lasts until the second trading day of the New Year. S&P has averaged gains of 1.5% since 1969. In years when Santa Claus did not come to Wall Street, bear markets or sizable corrections have often materialized in the coming year.

December Outlook: Tracking Historical Patterns and Seasonal Trends Bodes Well for Yearend Gains

By: Jeffrey A. Hirsch & Christopher Mistal

November 24, 2015

Market action over the past months has been quite in line with historical and seasonal trends. After our October 5 Best Six Months Seasonal MACD Buy Signal, a classic October turnaround rallied stocks to the sixth best October performance for the S&P 500 since 1930. November opened strong as usual the first two trading days then sold off through mid-month until the week before Thanksgiving.

With last week’s gain the week before Thanksgiving is now up 18 of the past 23 years on DJIA. Last week’s 3.27% on the S&P 500 500 was its best weekly gain of 2015. However, November as a whole is currently quite flat as pre-election November’s tend to be, averaging 0.3% on the S&P versus the usual 1.5%. Small caps are also beginning to firm up as they tend to do this time of year.

Next month’s FOMC Meeting is arguably one of the most anticipated economic release events of all time. However, as we pointed out earlier this month, whether or not the Fed actually raises rates this time around is still an open discussion, but if they do, it would remove one large uncertainty that has held the market in check for the better part of a year. At which point, it would not be surprising to see the market make another run at record highs sometime in Q1 or early Q2 2016.

In addition to the Fed rate hike question, December packs its usual full docket of seasonal influences. Yearend tax-loss selling tends to create early month weakness, but unlike November, pre-election Decembers are much stronger on average, up 3.2% on the S&P since 1950 versus 1.7%.

Around mid-December the so-called January Effect usually begins where small caps outperform large caps into Q1, though most of the gain takes place the last two weeks of the year. December’s Triple Witching Week and week after are the most bullish of them all with DJIA up 19 of the last 24 TWW and 17 of the last 24 weeks after.

Triple witching Friday in December, when stock options, index options and index futures all expire the same day as they do every quarter is when we make our Free Lunch Bargain Stock Selections from the list of stocks making new 52-week lows. The list is compiled over the weekend and delivered to subscribers before Monday’s open.

Finally, there is the vaunted Santa Claus Rally. Yale Hirsch defined the SCR in 1972 as seven-trading-day period that spans the last 5 trading days of the year and the first two of the New Year. The S&P has averaged 1.4% over the period. But, the real significance is when it does not appear. As we remind in the headline on page 114 of the 2016 Almanac, “If Santa Claus should fail to call, bears may come to Broad and Wall. In the table below you can see that the last four time SCR was negative the year was either flat or suffered a bear market. The S&P was down -3.0% on the S&P this year and 2015 is on pace for a flat year.

Pulse of the Market

Following six straight weeks of gains from the end of September to the beginning of November, DJIA and other major indices all took a break during the second week of November. DJIA’s retreat was significant enough to turn both the faster moving (1) and slower moving MACD indicators negative. However, the bout of weakness was short-lived as the usually bullish week before Thanksgiving lifted DJIA back above its 200-day moving average (2) and put both MACD indicators on the verge of issuing new buy confirmation signals.

Through last Friday, DJIA (3), S&P 500 (4) and NASDAQ (5) were up in seven of eight weeks. This weekly winning streak is very similar to last year at this time when DJIA and S&P 500 were up eight out of nine weeks to wrap up 2014. Last year’s streak started in mid-October and lasted until the last week of December. The only blemish occurred during the second week of trading in December which has become prime tax-loss-selling season.

NYSE Weekly Advance, Decline, High and Low metrics have held up throughout the current rally. NYSE Weekly Advancers solidly outnumbered Decliners (6) last week as S&P 500 enjoyed its best weekly gain of 2015 (+3.27%). New NYSE Highs and Lows (7) are in a seesaw battle as major indices remain a few percentage points away from all-time highs. Should New NYSE Highs begin to expand meaningfully, new all-time highs could be around the next corner.

Weekly CBOE Put/Call Ratio (8) spiked to 0.91 during the week ending November 13. That was the highest reading since June 17, 2011. But, the market rebounded briskly the following week. At 0.75, CBOE Put/Call ratio is somewhat elevated. Again potentially worrisome for some and a positive sign for others as there seems to still be a healthy amount of skepticism surrounding the market recent moves.

Click for larger graphic…

December 2015 Strategy Calendar

By: Christopher Mistal

November 19, 2015

December Almanac, Vital Stats & Strategy Calendar:

By: Jeffrey A. Hirsch & Christopher Mistal

November 19, 2015

December is the number one S&P 500 month and the second best month on the Dow Jones Industrials since 1950, averaging gains of 1.7% on each index. It’s also the top Russell 2000 (1979) month and second best for NASDAQ (1971) and Russell 1000 (1979). Rarely does the market fall precipitously in December. When it does it is usually a turning point in the market—near a top or bottom. If the market has experienced fantastic gains leading up to December, stocks can pullback.

In pre-election years, December’s overall ranking remains about the same across the board however, average gains improve handsomely. DJIA averages 3.0%, S&P 500 3.2%, NASDAQ 4.9%, Russell 1000 3.5% and Russell 2000 4.0%.

Trading in December is holiday inspired and fueled by a buying bias throughout the month. However, the first part of the month tends to be weaker as tax-loss selling and yearend portfolio restructuring begins. Regardless, December is laden with market seasonality and important events.

Small caps tend to start to outperform larger caps near the middle of the month (early January Effect) and our “Free Lunch” strategy is served from the offerings of stocks making new 52-week lows on Triple-Witching Friday. An Almanac Investor Alert will be sent prior to the open on December 21 containing “Free Lunch” stock selections. The “Santa Claus Rally” begins on the open on Christmas Eve day and lasts until the second trading day of 2016. Average S&P 500 gains over this seven trading-day range since 1969 are an impressive 1.5%.

This is the first indicator for the market in the New Year. Years when the Santa Claus Rally (SCR) has failed to materialize are often flat or down. The last four times SCR (the last five trading days of the year and the first two trading days of the New Year) has not occurred were followed by two flat years (1994 and 2004) and two nasty bear markets in 2000 and 2008. As Yale Hirsch’s now famous line states, “If Santa Claus should fail to call, bears may come to Broad and Wall.”

December Triple Witching Week is more favorable to the S&P 500 with Monday up ten of the last fifteen years while Triple-Witching Friday is up twenty-four of the last thirty-three years with an average 0.4% gain. The entire week has logged gains twenty-five times in the last thirty-one years. The week after December Triple Witching is the best of all weeks after Triple Witching for DJIA and is the only one with a clearly bullish bias, advancing in twenty-three of the last thirty-three years. Small caps shine especially bright with a string of bullish days that runs from December 17 to 28.

Trading the day before and the day after Christmas is generally bullish across the board with the greatest gains coming from the day before (DJIA up seven of the last eight). On the last trading day of the year, NASDAQ has been down in twelve of the last fifteen years after having been up twenty-nine years in a row from 1971 to 1999. DJIA, S&P 500, and Russell 1000 have also been struggling recently and exhibit a bearish bias over the last twenty-one years. Russell 2000’s record very closely resembles NASDAQ, gains every year from 1979 to 1999 and only four advances since.

December (1950-2014)
	DJI		SP500		NASDAQ		Russell 1K		Russell 2K
Rank		2		1		2		2		1
# Up		46		49		26		28		29
# Down		19		16		18		8		7
Average %		1.7		1.7		1.9		1.6		2.8
4-Year Presidential Election Cycle Performance by %
Post-Election		1.0		0.5		1.0		1.3		2.5
Mid-Term		1.5		1.8		0.6		1.1		1.7
Pre-Election		3.0		3.2		4.9		3.5		4.0
Election		1.3		1.2		1.4		0.7		3.0
Best & Worst December by %
Best	1991	9.5	1991	11.2	1999	22.0	1991	11.2	1999	11.2
Worst	2002	-6.2	2002	-6.0	2002	-9.7	2002	-5.8	2002	-5.7
December Weeks by %
Best	12/2/11	7.0	12/2/11	7.4	12/8/00	10.3	12/2/11	7.4	12/2/11	10.3
Worst	12/4/87	-7.5	12/6/74	-7.1	12/15/00	-9.1	12/4/87	-7.0	12/12/80	-6.5
December Days by %
Best	12/16/08	4.2	12/16/08	5.1	12/5/00	10.5	12/16/08	5.2	12/16/08	6.7
Worst	12/1/08	-7.7	12/1/08	-8.9	12/1/08	-9.0	12/1/08	-9.1	12/1/08	-11.9
First Trading Day of Expiration Week: 1990-2014
#Up-#Down		14-11		14-11		12-13		14-11		13-12
Streak		D1		D1		D1		D1		D1
Avg %		0.1		0.04		-0.04		0.02		-0.1
Options Expiration Day: 1990-2014
#Up-#Down		16-9		18-7		17-8		18-7		15-10
Streak		U2		U2		U2		U2		U2
Avg %		0.2		0.2		0.3		0.3		0.5
Options Expiration Week: 1990-2014
#Up-#Down		20-5		20-5		17-8		19-6		15-10
Streak		U3		U3		U3		U3		U3
Avg %		0.7		0.8		0.2		0.7		0.7
Week After Options Expiration: 1990-2014
#Up-#Down		17-8		15-10		15-10		15-10		18-7
Streak		U2		U2		U2		U2		U2
Avg %		0.7		0.6		0.7		0.6		0.9
December 2015 Bullish Days: Data 1994-2014
	3, 21, 22, 23, 28		3, 9, 16, 22		2, 3, 9, 21-24		3, 9, 16, 22, 23		2, 3, 8, 9, 17, 18
			23, 28		28		28, 29, 30		21-24, 28
December 2015 Bearish Days: Data 1994-2014
	None		4, 31		7, 17		4		15

S&P 500 Thanksgiving to Yearend Rally

By: Christopher Mistal

November 17, 2015

Historically, this week, the week before Thanksgiving has been a bullish week. DJIA has recorded a full-week gain during November options expiration week in 16 of the last 21 years. This strength typically extends into the days around Thanksgiving then from Thanksgiving to yearend as holiday cheer, yearend bonuses, dividends, buybacks, etc., usually fuel the markets move higher. However, as of yesterday’s close, the S&P 500 was down 0.28% year-to-date. This is well below the average pre-election election or 7th Year of presidential terms historical performance and an outlier even when all years since 1950 are considered.

Prior to this year, the S&P 500 was down for the year just 22 times in the last 65 years on the day before Thanksgiving. Given today’s trading and the limited number of days till Thanksgiving, there is a distinct possibility that 2015 could be the 23rd year to still be negative for the year on the day before Thanksgiving. In the last 65 years, S&P 500 has averaged a 1.98% gain from Thanksgiving to yearend with a record of 46 advances and 19 declines. From the close on the day after Thanksgiving to yearend, the record is slightly softer with an average move of 1.62% (44 up and 21 down).

Splitting the last 65 years of data based upon year-to-date performance on the day before Thanksgiving revealed a softer Thanksgiving to yearend rally when the S&P 500 was negative year-to-date and the frequency of gains declined to just 14 times in 22 years. Here again, using the close on Friday, the day after Thanksgiving to yearend the record weakened further.

In this next table, positive year-to-date-on-the-day-before-Thanksgiving years appear. In this scenario we see the average Thanksgiving to yearend rally appear more frequently and with a greater average gain of 2.05%. Removing the day after Thanksgiving has little impact as the average move holds up and frequency of gains does not change.

This last scenario is the most interesting and the most likely outcome for S&P 500 this year. In this table flat year-to-date, defined as S&P 500 down less than 5% or up less than 5%, appear. In these 10 previous years, only in 2005 did S&P 500 fail to rally from Thanksgiving to yearend while the average in all 10 years was 3.12%. Although there is no guarantee that 2015 will finish the year in a similar manner, it is encouraging to see that traders and investors did succumb to past holiday cheer to push S&P 500 higher even after 11 months of flat returns.

Portfolio Updates: October Stock Basket Delivers

By: Christopher Mistal

November 12, 2015

Since the late September bottom, and shortly thereafter our Seasonal MACD Buy Signal on October 5, the market had vaulted higher. DJIA, S&P 500 and NASDAQ all reclaimed their respective 50- and 200-day moving averages. Today’s declines put DJIA and S&P 500 back below their 200-day moving averages (solid red line in charts below). NASDAQ remains around 1% above its 200-day moving average. Stochastic, relative strength and MACD indicators have all plunged in the past few trading sessions, confirming the loss of upward momentum.

After a brief respite, the usual suspects of headwinds have reemerged. Greece and Puerto Rico are back in the headlines accompanied by the Fed’s desire to raise rates which in turn triggered the dollar to strengthen anew and commodities to stumble again. It still remains to be seen if the Fed will actually raise rates at its December meeting. They have raised rates in past Decembers and even in past election years, but those rate increases were accompanied by firmer growth and inflation, both of which appear to be lacking this time around. The headline unemployment number, currently at 5%, also does not convey the true state of the labor market where the participation rate has sunk to its lowest level in nearly four decades.

Whether or not the Fed actual has to raise rates is still an open discussion, but if they did, it would remove one large uncertainty that has held the market in check for the better part of a year. At which point, it would not be surprising to see the market make another run at record highs sometime in Q1 or early Q2 2016.

Stock Portfolio Updates

Since last update on October 22, the Stock Portfolio has gained 0.9% while the S&P 500 and Russell 2000 have climbed 2.8% and 2.9%, respectively, as of yesterday’s close. This performance is respectable considering the sizable cash position that still remains in the portfolio. Our Stock Portfolio produced gains across all three market cap ranges. Large-cap stocks were best up 3.2% while small-caps crept 0.6% higher and mid-caps edged 0.4%.

Of the sixteen new stock ideas presented on October 13 all but Walker & Dunlop (WD) and Scotts Miracle Grow (SMG) have been added to the portfolio. WD and SMG can still be considered on dips below their respective buy limits. Merit Medical (MMSI) was added to the portfolio early in the trading session on October 23 at $22.40 and was stopped out the same day when it closed below $19.04. The wild ride was apparently due to softer than expected earnings. Revenues were up 6% compared to year-ago, but were shy of expectations and the bottom line was also disappointing as lower margins and higher spending took a bit out of profits.

Other stocks in the basket had better earnings to report. Douglas Dynamics (PLOW), LGI Homes (LGIH), D R Horton (DHI), Hanesbrands (HBI) and Tractor Supply (TSCO) all reported positive, market-moving earnings. Some of the initial gains have been given back as broad market weakness dampens traders’ and investors’ spirits. Northern Trust (NTRS) and Team Health (TMH) are the two top performers of the basket thus far, up 12.4% and 12.5% respectively.

Competing analysts’ views and broader retail sector weakness combined to knock Gildan Activewear (GIL) down to a 52-week low that was several dollars below its stop loss. As a result, GIL was stopped out on October 23 for a 29.5% return.

Recent research suggesting a tepid November is being confirmed by the market this week. Following this year’s big October gain early November strength has faded and the market is likely to stumble along into December. Pre-election Novembers are also historically weak. With this in mind, the majority of positions in the portfolio are on hold for now. The market may provide a more attractive buying opportunity in coming weeks.

See table below for specific stock advice as well as updated stop losses.

[Almanac Investor Stock Portfolio – November 11, 2015 Closes]

Disclosure Note: At press time, officers of the Hirsch Organization, or accounts they control held positions in CALM, CCS, CNC, CVS, DHI, HBI, LGIH, MMSI, NTRS, PLOW, SUN, TMH, TSCO AND VSR.

Seasonal Sector Trades: Thanksgiving Gives Gold A Boost & Long Bond Poised for Further Declines

By: By Christopher Mistal & Jeffrey A. Hirsch

November 10, 2015

Gold prices tend to move up prior to the holidays, and the trend has worked especially well over the last 15 years. Seasonally speaking, it is best for traders to go long on or about November 18 and hold until about December 3. Over the last 40 years, this trade has worked 22 times for a success rate of 55.0% .The cumulative profit tallies up to $25,990. Up until two years ago this trade had been profitable for 12 straight years (2000-2011). The longer-term history of this trade is not as good, nonetheless profitable. Gold has had another tough year, but this is a short-term trade and gold has become oversold and appears ready for a bounce.

The chart below shows the correlation between gold and the exchange-traded fund SPDR Gold (GLD). This fund’s single holding is physical gold bullion. GLD currently holds 666.11 tons of gold giving it a market valuation of approximately $23.28 billion. GLD’s price line has been overlaid on the front-month gold futures contract. The line on the bottom section is the 40-year average seasonal price move for gold with the yellow shading highlighting seasonal strength from mid-November to mid-February. This trade targets the beginning of this seasonal move that typically peaks the first week of December. Last year, this trade was successful as gold bounced in early-December and eventually peaked in late-January.

[Gold (GC) Weekly Bars and Seasonal Pattern since 1975 and SPDR GOLD (GLD) Weekly Closes]

In the next chart, GLD is plotted above its stochastic, relative strength and MACD indicators. All three of these indicators are at or just off of oversold levels while GLD is trading right around its multi-year low reached in July. GLD is attractive at its current price with a buy limit of $104.50. Once a position is established, a stop loss of $99.90 is suggested. This trade will be tracked in the Almanac Investor ETF Portfolio.

30-Year Treasury Bond Can Freeze Up in Winter

Typically, we see a seasonal tendency for 30-year Treasury bond prices to peak in mid-November to mid-December and then start a decline lasting into April (highlighted with yellow box below). Perhaps investors seeking a higher return feel more comfortable buying into the year-end stock market rally, so they sell bonds and reallocate funds into equities. Or perhaps end-of-year window dressing or savvy traders, wishing to take part in the up-coming January effect, play a role in the decline of bond prices.

[30-Year Bond (US) Weekly Bars and Seasonal Pattern since August 26, 1977]

In any event, this trade in the last 37 years has just a 50.0% success rate. This trade’s shorter-term record is even weaker with six losses and just two wins since 2007. Bonds have been in a bull market for nearly four decades. Losses in 2007 and 2008 were the result of recession and financial crisis. In 2011 and 2012, the Fed took action to drive longer-term interest rates lower (bond prices higher) and Europe’s debt crisis triggered a flight to safety as well. In 2013 and 2014, tepid global growth and signs of deflation strengthened demand. Now the Fed’s next move is to raise interest rates. Even though the Fed will only be directly changing the Fed Funds rate, higher short-term interest rates usually translate into higher long-term rates and lower bond prices for existing supply.

[Short 30-Yr Treasury bond Trade History]

Traders may consider shorting the exchange-traded fund iShares Barclays 20+ Year Bond (TLT) or trading its put options as a replacement for the futures contract. TLT recently broke down through support at its 50- and 200-day moving averages and projected monthly support (green dashed line) at $120.60. Stochastic, relative strength and MACD indicators are all negative. TLT could be shorted near resistance at $122.59 or on a break down below $118. If shorted, set a stop loss at $125.75. This trade will also be tracked in the Almanac Investor ETF Portfolio.

[iShares Barclays 20+ Year Bond (TLT) Daily Bar Chart]

Top Sectors to Own During the “Best Six Months”

By: Christopher Mistal

November 05, 2015

Way back in 1986 when Yale Hirsch, creator of the Stock Trader’s Almanac, first published his discovery that the market makes the majority of it gains in just six months of the year, he simple dubbed the pattern the “Best Six Months.” By analyzing monthly performance figures for DJIA and S&P 500 he noted a clear pattern that repeated rather consistently year after year, the bulk of the markets advance was made in the months from November to April. These six months combined have produced an average DJIA gain of 7.5% since 1950 compared to an average gain of just 0.4% during the months May to October. Nowadays this market pattern is often associated with “Sell in May” or referred to as the Halloween indicator. We prefer the “Best Six Months” for obvious reasons and the period just started this past Monday.

We are just beginning the “Best Six Months” and like most traders and investors, we too are also looking for an extra edge. We know the broad market typically performs its best now, but what about specific sectors, gold and Treasury bonds. Even during the “Best Six Months” there are still outperformers and underachievers.

In the following table, the performance of the S&P 500 during the “Best Six Months” November to April is compared to fourteen select sector 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, 1990-2014, a full 25 years of data was selected. This selection represents a reasonably balanced number of bull and bear years for each and a long enough timeframe 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 Best Six Months November-April Since 1990 table]

Using the S&P 500 as the baseline by which all others were compared, nine indices outperformed during the “Best Six Months” while seven underperformed based upon “AVG %” returned. At the top of the list is Biotech with average gains of 14.25% during the “Best Months.” But, before jumping into Biotech positions, only 20 years of data was available and in those years Biotech was up 70% of the time from November through April. Biotech’s current streak of six consecutive double-digit-winning “Best Six Months,” could be broken this time around as drug pricing has caught the eye of D.C. residents and want-to-be residents.

Based purely upon “AVG %,” the second, third and fourth best are a virtual tie with gains all in the 10% range. Consumer Discretionary is arguable the best sector to own during the “Best Six Months” with a 10.69% average return and an 88% success rate. Transportation and Natural gas stocks also average better than 10%, but their success rates are slightly softer at 76% and 67% respectively. Natural gas stocks best months appear to be February, March and April, especially when it has been a long, unseasonably cold winter.

Other “Best Six” top performers are Materials, Industrials, Information Technology, Financials and NYSE ARCA Oil & Gas. All have bested the S&P 500 over the past 25 “Best Months” periods. Materials and Industries further one-up the broad S&P 500 with success rates of 88% compared to 84%. Just three losses in 25 periods is a remarkably solid record.

It is also noteworthy to mention that the darlings of the “Worst Six Months,” Healthcare and Consumer Staples do continue to advance during the “Best Six Months,” just at a slower pace and with less consistency. Other laggards include Gold, Utilities, Gold & Silver stocks and Telecommunications. These laggards do produce average gains during the “Best Months,” but here again we see their success rates are not consistent and in the case of Gold & Silver stocks there have been more declines than advances.

The only outright loser was the 30-year Treasury bond during the “Best Six Months.” Its success rate is under 50% (more losses than wins) and its average and median moves are both negative. With stocks on the move higher during the “Best Months” it is not surprising to see defensive sectors, gold and bonds suffer.

One “Best Six Months” trading and investment strategy based upon this table would be to overweight Biotech, Consumer Discretionary, Transports, Materials and Industrials while underweighting Healthcare, Consumer Staples, Utilities, anything related to gold and silver (either the actual commodity or the stocks of companies that mine it) and bonds.

ETF Trades: Core Four Up 6.4% Since Seasonal Buy Signal on October 5

By: Christopher Mistal

November 03, 2015

October 2015 was the best month for the market since October 2011. DJIA advanced 8.5%, S&P 8.3%, NASDAQ 9.4% and Russell 2000 was up 5.6%. DJIA gained 1379.54 point in the month, just the third month in history to eclipse 1000 points. October 2011 and April 1999 were the other two. Stellar performance like this tends to spur substantial debate. What happens next? Has the market borrowed from November and December? What will the rest of the year look like? We first looked at the subject on October 14 when S&P 500 was up 4.4% and then took a second look on October 26 when S&P 500 was closing in on an 8% gain.

That second look included a narrowly focused historical look at the 30 trading days before the first trading day in November and the 60 trading days after. That research showed that past stellar Octobers were followed by below average gains for November to December of 1.9%. It also highlighted a rather tepid November and first half of December that eventually lead to a solid 7% move from around mid-December to early January.

In the next two charts, DJIA, S&P 500, NASDAQ and Russell 2000 average performance in November is plotted. The first chart is the most recent 21-year period spanning 1994 to 2014. In this chart, November opens strong, peaks around the fourth trading day, trades lower till the eighth trading day, bounces mid-month, moves sideways to lower during the week before Thanksgiving then higher to close out the month with gains ranging from just under 1.5% for Russell 2000 to over 2% for DJIA.

In a typical pre-election year, like 2015, November’s pattern is similar in shape, but average gains dwindle. NASDAQ (since 1971) and Russell 2000 (since 1979) lead and finish with a gain of slightly less than 1%. DJIA and S&P 500 finish the month with average gains of just 0.29%.

[TYPICAL PRE-ELECTION NOVEMBER TRADING SINCE 1951]

The combination of a big October gain and typical pre-election weakness in November suggests a tepid month this time around. However, this combo also presents an opportunity to buy any weakness ahead of Thanksgiving or around mid-December for a potentially solid rally in January 2016.

ETF Portfolio Updates

No new sector trades begin in the month of November. Oil’s seasonal weak period that typically begins in September does come to an end at the start of November. PowerShares DB Energy (DBE) was shorted as a way to take advantage of seasonal weakness in heating oil which overlapped with oil stock weakness. DBE reached a low of 12.83 on October 27 and has been rallying since. At yesterday’s close this short trade was barely positive and today’s big move is going to result in the position being stopped out. Recent oil market volatility suggests there may be an opportunity to exit this short trade closer to break even than at today’s level. Officially, DBE’s final return will calculated in the next ETF Portfolio update.

Previously mentioned October strength has lifted the ETF Portfolio Open Position Average to 7.7%. iShares US Tech (IYW), iShares DJ US Telecom (IYZ), SPDR Materials (XLB) and iShares NASDAQ Biotech (IBB) are all showing double-digits gains and are currently on Hold. SPDR Financial (XLF) and SPDR Healthcare (XLV) are up 6.7% and 7.4% respectively and are also on Hold.

Core four positions in DIA, IWM, QQQ and SPY, used to trade our Tactical Seasonal Switching Strategy (Best Six/Eight Months) are currently up 6.4% on average and are on Hold as well.

Open trade ideas, IYT, SOXX, XLK and VNQ can be considered on dips. Buy limits and auto-sell prices for these positions have been updated to account for recent moves. Should the market take a breather this month or early December as market history suggests it may do, we will look to use any dip then to add to existing positions or establish new long positions in the remaining unfilled trade ideas.

See table below for updated buy limits, stop losses and auto-sell prices. Every stop loss except VNQ has changed.

[Almanac Investor ETF Portfolio – November 2, 2015 Closes]

Disclosure Note: At press time, officers of the Hirsch Organization, or accounts they control held positions in IBB, IWM, QQQ, XLV and XRT.