Please take a moment and register for our member’s only webinar, December 2023 Outlook and Update on Wednesday December 6, 2023, at 2:00 PM EDT here:

 

https://register.gotowebinar.com/register/2257348384912424799          

 

Please join us for an Almanac Investor Member’s Only discussion of recent market action with time for Q & A at the end. Jeff and Chris will cover their outlook for December, review the Tactical Seasonal Switching Strategy ETF, Sector Rotation ETF, and Stock Portfolio holdings and trades. We will also share our assessments of the Fed, inflation, the "Best Months" as well as relevant updates to seasonals now in play.

 

If you are unable to attend the live event, please still register. Within a day of completion, we will send out an email with links to access the recording and the slides to everyone that registers.

 

After registering, you will receive a confirmation email containing information about joining the webinar and a reminder message.

 

 

11/30/2023: Dow 35950.89 | S&P 4567.80 | NASDAQ 14226.22 | Russell 2K 1809.02 | NYSE 16088.84 | Value Line Arith 9179.46

 

Seasonal: Bullish. December is the third best month for DJIA, S&P 500, NASDAQ, and Russell 1000. It is Russell 2000’s second best month. In pre-election years, performance has been even stronger with average gains ranging from 2.7% from DJIA to 4.2% by NASDAQ. Tax-loss selling can weigh on the first half of December. Free Lunch to be served before the market opens on December 18. January Effect of small-cap outperformance usually begins mid-December. Santa Claus Rally begins on December 22 and runs until January 3.

 

Fundamental: Mixed. Q3 GDP was revised higher to 5.2%, but the Atlanta Fed’s GDPNow model is now estimating Q4 growth of just 1.8%. Inflation metrics continue to indicate cooling inflation, but year-over-year prices are still rising, and inflation remains above the Fed’s target. Employment data is still reasonably firm with some signs of softness. Geopolitical tensions remain elevated despite a temporary cease fire between Israel and Hamas. Perhaps these are the early signs of a soft economic landing. 

 

Technical: Breaking out? DJIA has closed at a new recovery high and is less than 900 points from its all-time closing high. S&P 500 and NASDAQ are nearing their respective recovery closing highs from July. Those old highs are presenting some resistance that could be eclipsed before yearend. All three indexes at new recovery highs would be further confirmation the bull market remains intact and is likely to continue.

 

Monetary: 5.25 – 5.50%. The Fed is most likely done with rate hikes. The desired soft economic landing appears to be unfolding. To maintain credibility, it will not be surprising to see the Fed remain hawkish on inflation as it reminds all that it is data-driven and data-dependent. As long as interest rates are not rising or expected to rise, the market will have one less concern to contend with.

 

Sentiment: Holiday Cheer. According to Investor’s Intelligence Advisors Sentiment survey Bullish advisors stand at 55.7%. Correction advisors are at 22.9% while Bearish advisors numbered 21.4% as of their November 29 release. Broad market gains have lifted bullish sentiment, but not yet to lofty levels. Because it is the holiday season and the “Best Months,” elevated bullish sentiment is less concerning. 

 

Right on cue the market correction ended just before the end of October. As we went to press with last month’s outlook on Thursday, October 26, NASDAQ halted its 3-month slide with a loss of -12.3%. DJIA and S&P 500 finished their corresponding seasonal drops the very next day with losses of -9.0% and -10.7% respectively. Then just as we expected this November-to-remember rallied NASDAQ up 13.4% from the October low with S&P and DJIA both up 10.9% at today’s close. 

 

So, what’s with all the bearish sentiment we keep hearing from Wall Street analysts and CEOs and many market pundits? Just this morning on one of the national financial news shows the anchor and reporter were looking for reasons Q3 GDP was so robust at 5.2%. Their conclusion was that the work-from-home crowd is consuming instead of commuting and of course when they are forced to go back to the office next year all the spending will end. 

 

Yesterday, at the vaunted New York Times DealBook Summit, everyone’s favorite big bank CEO delivered some dire warnings that he is cautious about the economy, inflation is hurting people, recession is not off the table, and this is a very dangerous time. We have geopolitical and economic concerns as well. They are always a factor for us. The current heightened turmoil is one of our main worries, but our reading of the economy is that it is rather resilient and that is being reflected in the market’s upswing.

 

Inflation is cooling and the Fed, despite any jawboning you may hear, is done with increases for all intents and purposes and is only posturing to remind everyone that they are data dependent too. Today the Fed’s favorite inflation indicator reading PCE hit an 18-month low of 3.0% annual rate. Inflation’s cooling trend is rather apparent in our favorite chart of CPI, PPI and PCE.

 

 

With November logging its fourth best gain on the S&P since 1950 at a whopping 8.9% for the month there’s some concern that the strong November will take from December’s usual gains. However, when we ran the numbers, the impact was rather negligible. The other top three Novembers 1962, 1980 and 2020 were followed by up December 2 out of 3 times with December 1980 being down -3.4%. 

 

While two out of three ain’t bad, as Meat Loaf would say, December is up 74% of the time in all 73 prior years since 1950. The top 10 and top 20 Novembers were followed by up December 70% of the time, though average gains are a little above average for the top ten at 1.8%. So, all in all, big November gains take very little if anything away from historically strong Decembers. In short, gains beget gains.

 

We still don’t understand why so many on The Street are so bearish. It’s the holiday season. It is seasonally the most bullish time of the year. And seasonality remains on track and firing on all pistons as does the 4-Year Cycle. Market internals and technicals continue to be supportive. Those that may remember the 1990s will recall that the market can flourish, driven by innovation and technology – can you say AI? – even when interest rates are at current levels or even higher. The bond market continues to signal a declining trend in rates with the 10-year and 30-year bond yields retreating off the recent highs.

 

 

 

We are just at the beginning of the Best Six Months of the year and the Best Three consecutive months of the year. It’s also a pre-election year, the best year of the 4-year cycle, that often sees a new high in December and frequently on the last trading day of the year. December has been a solid month in all years as well as pre-election years, ranking second or third no matter how you slice it.

 

After some likely first half December tax-loss selling pressure, we look forward to seeing Santa’s arrival and a positive Santa Claus Rally. Then we will be watching for a positive First Five Days and January Barometer, what refer to as our January Indicator Trifecta. Until the market says otherwise, we anticipate them all to be positive. But as we always remind readers: if these seasonal indicators are negative and the market does not rally as it normally does during these bullish seasons, we will likely shift to a less bullish posture – if not outright bearish. 

 

We will also be on the lookout for small-cap strength to begin around mid-December. What used to be known as the “January Effect” of small-cap outperformance can last from mid-December through March. Small caps, notably the Russell 2000 Index has been lagging and remains under water since its November 2021 high. However, since the October low the R2K looks like it’s bottoming and setting up for a more typical seasonal mid-December rally.

 

Our Free Lunch strategy targets early-December tax-loss selling and yearend seasonal strength. The Free Lunch Basket will be compiled after the close on December 15, 2023, AKA Triple Witching Day, and emailed to subscribers before the open on Monday, December 18. Most likely it will be out on Saturday afternoon.

 

For 2024, we are also bullish. Politics aside, a sitting president running for re-election is the most bullish of scenarios as you can see in the chart below which appears on page 11 of the 2024 Almanac. There is strong historical evidence that incumbent administrations do everything they can to stay in power. 

 

When a sitting president is running for reelection S&P 500 averages a gain 12.8% in election years since 1949. This is substantially better than when there is an open field with no sitting president in office running, culminating in a loss of -1.5% on average for the year. The market hates uncertainty and with a sitting president running there is a good chance market, economic and civic conditions will likely remain unchanged whereas with an open field there are a great deal of unknowns. 2024 has that power of incumbency going for it.

 

 

We see the uncertainty but remain bullish until the market signals otherwise. 2023 has been a nearly textbook pre-election year for S&P 500 and NASDAQ following the anticipated mid-term year 2022 bear. AI could be the innovation and driving force for market gains in 2024 and beyond just as indoor plumbing, the combustion engine, automobile, microprocessor, PC, internet, cellphone, etc., powered the market higher in previous secular bull markets.

 

We remain bullish for the rest of 2023 and expect a proper Santa Claus Rally. The prospects for the market in an election year with a sitting president running for reelection are bullish. At this juncture we expect 2023 to finish strong after a flat first half of December and gains in the 8-12% range for 2024.

 

 

With nearly five weeks passing since DJIA bottomed on October 27, and closing at a new recovery high today, it feels relatively safe to say that October was a turnaround month once again. DJIA’s November surge has vaulted it back above its 50- and 200-day moving averages (1). DJIA’s 8.8% November gain has quickly undone the bearish “death cross” that existed for two trading days around mid-month. The subsequent bullish “golden cross” has been accompanied by continued gains. As a reminder, a death cross forms when the 50-day moving average falls below the 200-day moving average and a golden cross occurs when the 50-day moving average rises back above the 200-day moving average.

 

As of yesterday’s close, November 29, both the faster and slower moving MACD indicators applied to DJIA were fading as momentum waned (2). Today’s gains, not shown in the chart, will aid in reversing that trend. Although we do not use these signals in the Tactical Seasonal Switching Strategy portfolio now that the “Best Months” are underway, they could prove useful for anyone looking to trade typical early-December weakness.

 

 

After struggling through August, September, and October, DJIA (3), S&P 500 (4), and NASDAQ (5) have advanced for four straight weeks. This is the first time in 2023 that all three indexes have advanced together for four weeks. Strength across all three, at the same time, is encouraging and suggests further gains are likely. But we also do not expect this winning streak to continue indefinitely. There will be another down week or two, perhaps in the first half of December. 

 

Market breadth over the past four weeks has been generally bullish with Weekly Advancers outnumbering Weekly Decliners in three weeks (6). The week ending November 10, was the one exception despite all three indexes recording solid weekly gains. Overall, market breadth suggests that there is broad participation in the rally.

 

The trend of Weekly New Highs and New Lows is also supportive. Weekly New Highs have been trending higher since the end of October while Weekly New Lows have retreated dramatically, from 787 to 58 last week (7). A continued rise in the number of New Weekly Highs would confirm a rally that has legs and is broadly supported.

 

In response to cooling inflation metrics and growth outlooks, the 30-year Treasury bond yield has retreated nearly as quickly as it rose. After peaking at 5.02% in late October, it declined to 4.57% last week (8). The 10-year Treasury has also had a similar decline in yield. The declines in interest rates are aiding stocks. As long as yields are not rising, the market has one less concern to overcome.

 

 

 

December is the number three S&P 500 and Dow Jones Industrials month since 1950, averaging gains of 1.4% and 1.5% respectively. It’s the second-best Russell 2000 (since 1979) month and third best for NASDAQ (since 1971). It is also the third best month for Russell 1000 (since 1979). In 2018, DJIA suffered its worst December performance since 1931 and its fourth worst December going all the way back to 1901. However, the market rarely falls precipitously in December and a repeat of 2018 does not seem highly likely this year. When December is down 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 have pulled back in the first half of the month.

 

 

In pre-election years, December’s overall ranking remains about the same across the board however, average gains improve handsomely. DJIA averages 2.7%, S&P 500 2.9%, NASDAQ 4.2%, Russell 1000 2.9%, and Russell 2000 3.0%. DJIA has advanced in 14 of the last 18 pre-election year Decembers. DJIA’s worst pre-election December was in 2015 when it declined a modest 1.7%. DJIA’s best pre-election year December was in 1991, up 9.5%. NASDAQ’s pre-election year December track record is somewhat mixed, up 7 and down 6. An 11.29% advance in 1991 and a whopping 22.0% in 1999 drive its average performance to 4.2%. Like DJIA, NASDAQ’s poorest pre-election year December was in 1983, off 2.5%.

 

 

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. December’s first trading day has been bearish for S&P 500 and Russell 1000 over the last 21 years. A modest rally through the fifth or sixth trading day also has fizzled going into mid-month. It is around this point that holiday cheer tends to kick in and propel the indexes higher with a pause near month-end. Pre-election year Decembers follow a similar path, but with noticeably larger historical gains in the last third of the month.

 

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 email Issue will be sent prior to the market’s open on December 18 containing “Free Lunch” stock selections. The “Santa Claus Rally” begins on the open on December 22 and lasts until the second trading day of 2024. Average S&P 500 gains over this seven trading-day range since 1969 are a respectable 1.3%.

 

This is our 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 six 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 three flat years (1994, 2004 and 2015) and two nasty bear markets (2000 and 2008) and a mild bear that ended in February 2016. 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 fourteen of the last twenty-three years while Triple-Witching Friday is up twenty-six of the last forty-one years with an average 0.18% gain. The entire week has logged gains twenty-eight times in the last thirty-nine 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 thirty-one of the last forty-one years. Small caps shine especially bright with a string of bullish days that runs from December 20 to 22.

 

Trading the day before and the day after Christmas is generally bullish across the board with the greatest gains coming from the day before (NASDAQ up twelve of the last sixteen). On the last trading day of the year, NASDAQ has been down in seventeen of the last twenty-three 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 six advances since.

 

 

 

Seasonality continues to work. August and September were challenging with broad declines. October appears to have been a turnaround month, again, with the market finding bottom late in the month. Our Tactical Seasonal MACD Buy signal was a bit early this year, but the subsequent market dip provided ample opportunity to pick up new positions at a bargain price. Based upon seasonal patterns and recent data, we maintain our bullish outlook for the “Best Months.”

 

We do recognize that numerous headwinds and concerns remain. Inflation does appear to be cooling once again based upon this week’s CPI and PPI reports, but the Fed still seems as confused as ever. One day signaling they could be done with rate hikes and then the next expressing the opposite opinion. Geopolitical risk remains elevated with two active wars. Plus, ongoing U.S. recession worries.

 

For these reasons we do not expect the market to march higher in a straight line. Headline risk will likely create market chop and volatility. With the market rallying during its seasonally favorable period, we will continue to buy the market’s dips.

 

 

In last week’s email Issue we presented 20 new stock trade ideas. All 20 of the new stocks have been added to the portfolio as they all traded below their respective buy limits on Friday, November 10. Seventeen of the new positions were added at their buy limit price while, Frontdoor (FTDR), Grand Canyon Ed (LOPE), and Integer Holdings (ITGR) were added at their average daily price on November 10 as they opened below and stayed below their buy limit on Friday.

 

As of the close on November 15, InterDigital (IDCC) was the best performing new position, up 9.6%. The previous holding, Axcelis Technologies (ACLS) was a close second place with a 9.4% advance. Three positions were modestly in the red. The weakest was Virco Manufacturing (VIRC), off 2.9%.

 

All new positions from last weeks’ basket can still be considered on dips or at current levels. Please see the table below for individual buy limits and stop losses. As a reminder, many of the new positions are small and mid-cap stocks that can exhibit higher volatility.

 

 

 

The rally from October’s lows has lifted the portfolio’s open position average gain to 3.1%. Only iShares Biotech (IBB) is in the red. Interest rate sensitive sectors have performed the best as the 10-year Treasury yield retreated from around 5% to near 4.5%. SPDR Technology (XLK) was the top performing ETF as of the close on November 15. Vanguard REIT (VNQ) is a standout, up 5.1% after languishing much of this year.

 

All positions in the Sector Rotation ETF portfolio can be considered on dips or at current levels. Please see the table below for individual buy limits, stop losses and suggested auto-sell prices.

 

 

 

After a sluggish start, the Tactical Seasonal Switching Strategy portfolio is up and running with an average gain of 3.4%. As has been the case for all this year, Invescos QQQ (QQQ) is leading the way higher, up 4.6% as of the close on November 15. iShares Russell 2000 (IWM) has also returned to positive with a mild 1.8% advance.

 

All positions in the portfolio can be considered on dips. As a reminder, per the strategy there is no official stop loss or auto-sell price for these positions. The “Best Months” has a defined holding period and we do not want to get whipsawed out of a position nor do we want to limit potential gains by selling early. However, if this approach does not fit one’s risk tolerance, then it is acceptable to implement your own stop loss and target price.

 

 

 

Everyone is talking about market seasonality these days. Thank you. But let’s not take our eyes off the ball. Our updated seasonal pattern charts below of NASDAQ and S&P 500 show that stocks are still prone to choppy trading through mid-December, especially in pre-election years. And as we have been reminding lately one of the main indications that could derail our bullish outlook is if stocks do not rally during this bullish season and the market does not hit our January Indicator Trifecta (2024 Stock Trader’s Almanac, page 20). To wit:

 

“If the market does not rally, as it should during bullish seasonal periods, it is a sign that other forces are stronger and that when the seasonal period ends those forces will really have their say.” — Edson Gould (Stock market analyst, Findings & Forecasts, 1902-1987)

 

Technically the market is looking stronger. As we mentioned in the members only webinar, S&P 500 bounced off important support just above 4100 in late October near the February 24, 2022, intraday low on the day Russia invaded Ukraine. After registering weak numbers during the correction, market internals flipped positive during the recent rally and 8-day winning streak, triggering a rare Zweig Breadth Thrust Indicator when widespread buying follows widespread selling.

 

We still have our concerns. After Fed Chair Powell’s dovish post-FOMC meeting presser, today in remarks to an IMF group in Washington, D.C. he said he’s “not confident” the Fed has done enough to quell inflation. The 10-year bond rate ticked up a little. The dollar has been a little stronger. There’s also the U.S. Federal Government shutdown showdown hanging over the market and of course heightened geopolitical turmoil. But the economy is still showing clear signs of resilience and the seasonal and 4-year cycle patterns are still tracking quite well. So, for now we remain bullish and long U.S. equities and we provide new carefully selected stock ideas today.

 

 

 

 

The S&P 500’s 8-day winning streak ended today, but fear not, S&P is still bullish even after these streaks end. Including the current S&P 500 daily winning streak there have been 233 six-day (or longer) winning streaks by S&P 500 since 1950. Longer streaks are infrequent. Although S&P 500 has gone as long as 14 days without a decline (March 26 to April 15, 1971), it has done so just once in nearly 74 years. 

 

The current 8-day streak added 6.4% to the S&P 500 since it began on October 30. This is better than the average performance of the past 34 times that S&P 500 has been up eight days in-a-row, but well below the 11.9% S&P climbed in an eight-trading-day streak from March 12 to March 21, 2003.

 

Now that this streak has ended, all is not lost. As you can see in the following chart of the 30 trading days before and 60 trading days after the past 7-, 8-, and 9-day daily winning streaks ended, S&P 500 continued to move higher on average over the next 60 trading days.

 

 

 

 

Small caps have been struggling for two years now, hurt by non-transitory high inflation, the most aggressive rate-hiking regime we’ve seen since the 1980s, geopolitical turmoil with war on two fronts, fallout from pandemic and post-pandemic economic and labor woes. And the Russell 2000 small cap index recently hit a new multi-year low at the end of October. 

 

But, seasonally speaking, small caps are set up for their annual yearend rally into Q1, often referred to as the “January Effect,” where small caps outperform large caps in January. As we point out on pages 112 and 114 of the Stock Trader’s Almanac, most of the “January Effect’s” small cap outperformance takes place in the last half of December when tax-loss selling abates. Our annual November stock basket in the accompanying article of this week’s issue contains some brand-new, undervalued, off-Wall-Street’s-radar small cap picks.

 

As you can see in the accompanying chart the R2K has been tracking the pattern quite well since July and it looks like the small fry are coming out of hibernation just in time for small cap stock hunting season. Small cap stocks are facing several obstacles mentioned above, but they rallied strongly off the October 27 low with the rest of the market. R2K has given back some ground this week and our iShares Russell 2000 (IWM) position is still the worst performer of the Tactical Seasonal Switching Portfolio.

 

But as illustrated in the chart, small caps exhibit some chop from late-October through mid-December. Our small cap stock picks have historically done well as long as you honor the buy limits and stop losses. Last pre-election year in 2019 R2K had a nice rally from October to January before it was crushed by the pandemic. 

 

This basket is being presented in order to take advantage of the “Best Months” of the year (November through April/June) for stocks. We will look to add these 20 stocks, in the table below, near current levels or on minor dips. Many of the positions did weaken today as the S&P 500 and NASDAQ daily winning streaks came to an end and are likely to open below the suggested buy limits. We will allocate a hypothetical $3000 from the cash position in the portfolio to each position. For each stock we have provided the ticker, name, sector, general business description, PE, price-to-sales ratio, market value, current price, a dividend yield and a suggested buy limit and stop loss. When a stock dips below its buy limit, it will be added to the Stock Portfolio.

 

These 20 stocks all have reasonably solid valuations as well as  revenue and earnings growth. Most also exhibit positive price and volume action as well as other constructive technical and chart pattern indications. The group of 20 covers a broad array of sectors and industries. It also runs the gamut of market capitalization with a mix of large caps with more than $5 billion in market value, midcaps in the $1-5 billion range, and small caps under $1 billion.

 

We first sifted through the universe of U.S. traded stocks for those with a market cap of at least $100 million and average daily volume of 100,000 shares or more on average over the past twenty trading sessions. Then we winnowed the list down to only those stocks with relatively low price-to-sales and price-to-earnings ratios with some exceptions. A special nod was given to stocks with a below average number of analysts following them.

 

We then dug into numerous individual company charts before settling on these final 20 stocks. Our underlying theme was to find reasonably priced stocks that appear to be quietly growing sales and earnings while flying somewhat under the radar with only a limited number on The Street paying close attention to them. As market valuation goes higher, this becomes increasingly challenging, and a history of earnings surprises and estimates becomes even more important. 

 

At the end of the screening process, we were left with a reasonably diverse basket. The computer and technology sector is well represented with five stocks, but the remainder of the basket includes consumer discretionary/staples, medical, construction, aerospace, business services and finance related stocks. We did not search specifically for top-performing stocks within any specific sector, this just happens to be what remained after our process.

 

 

 

Over the past four weeks through yesterday’s close (November 8), S&P 500 inched 0.1% higher while Russell 2000 declined 3.3%. Over the same period the entire stock portfolio slipped 1.6% lower excluding dividends, any interest on cash and any trading fees. Mid-cap portfolio positions declined the most, off 22.4% on average. Small caps slipped 4.2%, but Large caps advanced 2.1%.

 

Declines in AI-related stocks Axcelis Technology (ACLS) and Super Micro Computer (SMCI) were sizable in October. Per standard policy ACLS and SMCI positions were half positions after selling half when they each first doubled from their original purchase price so what remains is essentially all gains. ACLS was stopped out on October 19 for a total gain, adjusted for selling half on a double, of 97.1%. Surging 10-year Treasury yield, cooling AI-stock sentiment and profit taking appear to be the main drivers behind their retreat. ACLS did make it through our screening process this year as well, and we will look to establish a new position.

 

MGP Ingredients (MGPI) also stopped out in October for a total gain of 115.6% after accounting for selling half the original position when it first doubled. Aside from a solid run in June and July of this year, MGPI has been mostly treading water. We will move on and consider new trade ideas.

 

In the Large-cap portion of the portfolio, Amdocs (DOX) was stopped out in October for a gain of 27.1%. As of today’s close, DOX was still below the price it was stopped out at. Here again we will just move on to consider some new ideas.

 

All other existing positions in the portfolio are on hold.

 

 

For those who were unable to attend the member’s only webinar on Wednesday, the slides and video recording are available here (or copy and paste in a new browser window: https://www.stocktradersalmanac.com/LandingPages/webinar-archive.aspx). In addition to the seasonal pattern charts we have been tracking and presenting throughout the year, Jeff recapped many of the concerns that the market has been working to overcome. Geopolitical issues, inflation and the 10-year Treasury yield were covered.

 

Typical seasonal weakness in August and September did spill into October. This is what we had been concerned about and it was expected. We anticipated the market could retreat 5-10% in the later months of the “Worst Months.” DJIA was down 9.0%, S&P 500 off 10.3% while NASDAQ was down slightly more at 12.3% from their respective summertime closing highs through their recent closing lows. Not only did the correction lineup well with seasonal patterns it also pushed fear and negative sentiment higher which from a contrarian view is a positive. 

 

And although it is still early to definitively say the Q3/early Q4 correction is over, more evidence is building. October has been a turnaround month and historically late October has been a good time to buy depressed stocks. This was presented in the October Strategy Calendar and in the Almanac on page 101. S&P 500 appears to have found support around 4100, right around the intra-day low on February 24, 2022, when Russia first invaded Ukraine. The market is rallying to kick off the start of November following its seasonal pattern and economic data continues to be resilient.

 

Continued market gains today on the heels of the Fed announcement yesterday are also positive and encouraging. Barring an unexpected resurgence in inflation, it appears the Fed is likely done increasing rates for now. This is potentially one less uncertainty for the market to grapple with.

 

A correction that is likely over, the Fed pausing, economic data holding up and bullish seasonality appear to be aligning to support a Q4 rally and a solid “Best Months.” The four-year cycle is also bullish with a sitting president running for re-election. We maintain our bullish outlook heading into year end and into next year. But we do not expect a straight line higher for stocks. Headline risk remains high, which is likely to contribute to volatility and some choppy trading. The “Best Months” have arrived, and we will continue buying the market’s dips.

 

 

Looking at the portfolio table below, updated with November 1 closing prices, it is apparent that we were early when we picked up new October trades ideas on October 10, the day after our Tactical Seasonal MACD Buy Signal triggered. Based upon experience, it was a reasonable decision as there have been years where the market did not look back and instead just accelerated away. This was not the situation this year. Instead, the market retreated and made a modestly lower low. All positions in the Sector Ration portfolio can be considered at current levels up to their respective buy limits.

 

Officially our approach to all the positions in the portfolio is to buy them all at an equal weighting. However, we recognize that some of the ETFs appear to overlap such as iShares US Technology (IYW) and SPDR Technology (XLK) and there are also 13 trade ideas. If the number of ETFs and/or the overlap is a concern or issue for you, it is acceptable to be selective. It will depend on your specific goals and risk tolerance. If seeking outright growth, one possible idea is to review historical returns for the sector and select those trades associated with the greatest historical returns. The portfolio also potentially offers varying degrees of risk. Healthcare and consumer staples are generally considered more conservative than biotech and technology sectors.

 

 

 

Partial positions in bond ETFs iShares 20+ Year Treasury Bond (TLT), iShares Core US Aggregate Bond (AGG) and Vanguard Total Bond Market (BND) have been stopped out of the portfolio. We were looking for a bounce higher, but that bounce did not arrive until after they had closed below their respective stop losses. The losses on TLT, AGG, and BND do not include any fees or dividends. At the start of the “Worst Months,” expectations for these positions were low as we did not expect a recession this year and the Fed was clear that fighting inflation was their primary mission. When NASDAQ’s Seasonal MACD Sell triggered back in June, we did not add to existing partial positions.

 

“Best Months” positions, QQQ, IWM, DIA and SPY can still be considered at current levels up to their respective buy limits. As noted above, we maintain our bullish outlook for the “Best Months,” but do expect some chop as news headline risk is elevated.