January 2017 Trading & Investment Strategy By: | December 22, 2016 | Email | Print

 

And a Happy 50th Anniversary to you all! It is with great joy that we commemorate the 50th year of the Stock Trader’s Almanac. It will be 51 years in February that our iconic thinking founding father Yale Hirsch incorporated the Hirsch Organization to fulfill his vision and embarked on this steadfast and judicious journey of putting market history seasonality, cycles, patterns and trend following on the Wall Street map. 

 

You see and hear it everywhere in financial media. Phrases like “Santa Claus Rally,” “January Effect,” “Election Cycle,” and “Market Seasonality” have become ingrained in the vernacular of The Street. Seasonal trend functions are now embedded in charting software. Many market observers, investors and traders still are dubious of technical analysis, charting, seasonality, cycles, patterns and trends. Yet shrewd professional money managers continue to rely on these market patterns and tendencies to enhance timing, executions and returns.

 

We are always reassessing and cross-checking the patterns, cycles and tendencies we track and remain on the lookout for new trends, shifts, changes and the demise of existing doctrine. This is why we use all market analytical tools at our disposal, summarized below in our “Market at a Glance.” 

 

We know you have probably heard all about the upcoming seasonal, cyclical and Trump-related-election and other patterns, but let’s take a moment to review what’s coming up on the calendar in the near future and some of the trends we believe can impact the market in 2017.

 

 

Last year at this time we projected, “If the Fed is right and the energy and commodities price decline proves transitory and prices stabilize, we expect average election year gains in the mid-single digits. If the Fed is wrong and oil and commodities suffer further declines and the junk bond scenario unravels we may begin a mild bear market next year.”

 

Then at the end of January after a down January Indicator Trifecta (Down Santa Claus Rally, Down 1st 5 Days & Down January Barometer) we updated our forecast with, “Despite the pile of negative indicators, and as long as all three major indices do not meaningfully violate their respective October 2014 lows, the scenario of transitory effects remains in play and mid-single-digit full-year 2016 is still the most likely outcome.”

 

On October 27 with the market up about 4% year-to-date across the board in our November Outlook we said it was time to “Let the Good Times Roll!” And that: “The market is likely to continue to waffle until after the election as the country and the world is a little on edge with this year’s unique circumstances. But after that we expect an upside move in November and through the Best Six Months and the first 100 days of the new President with some weakness in the first half of December and a January/February profit-taking break…”

 

Finally on November 15 in our Super Boom Update: “We now believe that the part of this forecast that has called for a final tactical bear of 20-30% sometime in 2017-2018 may be averted. The shock and awe outcome of the recent U.S. presidential election may be an indication of a political paradigm shift and a big change in direction that could spark the next super boom. Sure the market has nearly tripled since the 2009 low, but we think the next big move is around the corner. Back in 1983 when folks started to realize the last boom was underway the market had already more than doubled. Have a look at the comparison below of the market from 1973-1986 versus today’s market since 2007. We appear to be on a similar path.”

 

 

So the market meandered along through most of 2016 as we expected in the mid-single digit gain range until it amazed us all by rallying smartly on the heels of the surprise Trump victory. But if you think about it the best cast scenarios for Trumps agenda could mean a sea change in Washington and economic growth in this country and that’s what the market is rallying on and will continue to rally on until if and when the Trump Administration stumbles significantly. 

 

That’s really what our forecast is about this year: If Trump succeeds, the market booms, if he fails, the market lags. So where are we at now? Looks like tax-loss selling ran into this week, but seems to be abating now. Tomorrow, the last trading day before Christmas, has been up 7 of the last 9 years on the Dow, NASDAQ and Russell 2000 with more “bullish” days early next week and quieter trade the end of next week. 

 

The Santa Claus Rally also officially commences tomorrow and runs through the second trading day of 2017. This short 7-trading-day rally is usually good for modest gains of 1.4% on the S&P, but is most significant when there is a decline during the period, which suggests poor market health. This is taken into consideration with our two other early year indicators, the First Five Days Early Warning and the full month January Barometer. 

 

After the January 20 Trump Inauguration and the full month market performance we will have an updated read on our market outlook. For now holiday cheer, bullish seasonality and the Trump momentum should keep stocks in an upward bias. Technically, the market is consolidating the recent gains and struggling to bust through the big psychological round number Dow 20,000 level, turning 20K into a bit of a resistance level. We will likely breakthrough by yearend or early in January.

 

Fundamentals are mixed though improving, though valuations are getting extended from the run up since the election.  Monetary policy is still historically accommodative, despite the latest hike and while this could put a crimp on valuations, rate normalization is a good thing. Accelerating growth and economic outlook stimulated by solid and sound fiscal policy could counter any interest rate pressures.

 

 

On Tuesday, December 20, 2016, DJIA closed just 25.38 points below 20,000 (1). This nice big round number makes great headlines and could act as resistance as some profit taking is likely around this mentally significant level. Technically, 20,000 is not that significant beyond the psychological reasons. Will it prove to be troublesome like 1,000, throughout much of the 1970’s, or 10,000 more recently or will 20,000 simply breeze by like 5,000 and never be seen again. It is far too early to say.

 

Both the faster and slower moving MACD indicators applied to DJIA have remained positive throughout much of the current rally. The faster moving 8-17-9 indicator (2) did briefly turn negative on the last day of November and for the first four days of December. It was then positive up until Tuesday December 20. Both indicators could turn negative if the rally does not resume soon.

 

 

As of last Friday, DJIA has advanced in eight of the last nine weeks and six in a row (3). Of the 1705 DJIA points gained during the past nine weeks, 610 came on Mondays (4). Strength on Mondays is usually a positive sign as it would suggest that traders are expecting further gains during the remainder of the week. This has been the case with DJIA.

 

S&P 500 and NASDAQ, or more specifically tech, has been lagging at various times during the current rally. Compared to DJIA’s six week winning streak S&P 500 (5) and NASDAQ (6) have each had two losing weeks. Some of this laggard performance could be attributed to a rotation out of what was working under the current administration to what might work under the next administration. In the end, tech will need to participate for the rally to continue.

 

NYSE Weekly Advancers and Decliners (7) have been behaving as expected. Weekly advancers were robust two weeks ago when all three major indices advanced and weekly decliners picked up last week when S&P 500 and NASDAQ modestly declined.

 

NYSE Weekly New Highs (8) had been steadily advancing since the second week of November until last week, but New Weekly Lows remain volatile. Some of the new lows could be the result of tax-loss selling while some could be the result of previously mentioned rotation from what was working to what might work. A consistent and steady increase in new highs accompanied by a steady decrease in the number of new lows is what we would prefer to see.

 

Weekly CBOE Put/Call fell to 0.53 two weeks ago (9). Recently readings at this level have occurred around interim tops. This is a cause for some concern in the near-term. Bullish sentiment is near frothy levels which could mean there is a limited amount of cash available that could be deployed in stocks to fuel the rally higher in the short term.

 

 

 

So, based on everything we have looked at, including the tentative geopolitical landscape we have three scenarios for next year:

 

 

The Trump Administration has many ambitious goals, it all boils down to his success or failure; and we won’t know that until at least some time after January 20 at the earliest. Mr. Trump recently seems to be drifting toward the middle in many areas. His repeal and replace mantra is now more like rework and keep the good, dump the bad. It looks like he will gravitate into comprise mode out of the blocks in order to achieve some quick and early limited success, which will be politically spun as a major victory and high achievement. 

 

We give base case a 65% chance as he does not appear to have enough congressional support to slam through all that he campaigned on, further rationale for more compromise and less actually delivered. 30% chance for best case is based upon some of his cabinet picks, the way he has been operating as President-Elect, and the mere fact his team did win the election. 5% chance for worst case is based upon the fact he doesn’t like to lose. He will fight and if needed, ultimately compromise to avoid a recession and a bear market. 

 

Happy Holidays & Happy New Year, we wish you all a healthy and prosperous 2017!

 

12/21/2016: Dow 19941.96 | S&P 2265.18 | NASDAQ 5471.43 | Russell 2K 1375.19 | NYSE 11142.57 | Value Line Arith 5340.24

 

Psychological: Robust Holiday Cheer. Weekly CBOE Put/Call ratio fell to 0.53 for the week ending December 9, a reading that has been common with past interim tops. Investors Intelligence Advisors Sentiment survey has bulls at 59.8%, just below 60% the level at which caution is usually in order. Bullish sentiment is at lofty levels which warrants close attention, but does not signal immediate danger just yet.

 

Fundamental: Mixed. Third quarter GDP was revised higher to 3.5% while the unemployment rate has dipped to 4.6%. Only issue with GDP in the quarter is it looks like it will be a one-time occurrence as a large soybean harvest and export inflated the quarter while the primary reason for the dip in unemployment was shrinkage of the labor force. The post-election rally has also elevated stock valuations to levels that concern some. The incoming administration is promising large and significant policy changes that could spur growth and boost corporate profits, but none of this has happened yet.

 

Technical: Consolidating. After breaking out to new all-time highs, DJIA, S&P 500 and NASDAQ appear to be pausing to digest and reflect on recent gains and possibly current and future valuations. Stochastic, relative strength and MACD indicators are all hovering around overbought levels. A brief pause would go a long ways towards alleviating the overbought condition. DJIA 20,000 is being billed as a milestone, but in reality is merely a nice round number that spurs an emotional response. For this reason and this reason alone, DJIA 20,000 could act as mild resistance. Once surpassed, the previous uptrend is likely to resume.

 

Monetary: 0.50-0.75%. As expected, the Fed did raise its key rate to a new range of 0.50-0.75% at its December meeting. Yes this is higher than what it has been for a rather long period, but within historical context, the Fed is still highly accommodative with a sub-1% rate. Further, the Fed remains data-dependent and the data is indicating any subsequent increases will be well-telegraphed and incremental in order to avoid any potential shocks to the financial system.

 

Seasonal: Bullish. January is the third month of the Best Six/Eight, but it is the last of the Best Consecutive Three month span. January is the top month for NASDAQ (since 1971) averaging 2.5%, but it has slipped to sixth for DJIA and S&P 500 since 1950. The Santa Claus Rally ends on January 4th and the First Five Days early-warning system ends on the 9th. Both indicators provide an early indication of what to expect in 2017. However, we will wait until the official results of the January Barometer on January 31 before tweaking our 2017 Annual Forecast. Alerts will be issued after the close on these dates.

 

January has quite a legendary reputation on Wall Street as an influx of cash from yearend bonuses and annual allocations typically propels stocks higher. January ranks #1 for NASDAQ (since 1971), but sixth on the S&P 500 and DJIA since 1950. It is the end of the best three-month span and possesses a full docket of indicators and seasonalities. 

 

DJIA and S&P January rankings have slipped precipitously as the month has suffered some significant losses over the last 17 years. From 2000 to 2016 both indices declined 10 times; three in a row from 2008 to 2010 and again 2014 to 2016. January 2009 has the dubious honor of being the worst January on record for DJIA (-8.8%) and S&P 500 (-8.6%) since 1901 and 1931 respectively.

 

On pages 106 and 110 of the Stock Trader’s Almanac 2017 we illustrate that the January Effect, where small caps begin to outperform large caps, actually starts in mid-December. Early signs of the January Effect can be seen by comparing iShares Russell 2000 (IWM) to SPDR S&P 500 (SPY) over the past few trading sessions. IWM is up around 2% since December 14 compared to a 0.2% gain for SPY. The majority of small-cap outperformance is normally done by mid-February, but strength can last until mid-May when most indices reach a seasonal high.

 

The first indicator to register a reading in January is the Santa Claus Rally. The seven-trading day period begins on the open on December 23 and ends with the close of trading on January 4. Normally, the S&P 500 posts an average gain of 1.4%. The failure of stocks to rally during this time tends to precede bear markets or times when stocks could be purchased at lower prices later in the year. Last year, there was no Santa Claus Rally and S&P 500 dropped 5.1% in the month of January before bottoming and rebounding in February.

 

On January 9, our First Five Days “Early Warning” System will be in. In post-presidential election years this indicator has a solid record. In the last 16 post-presidential election years 12 full years followed the direction of the First Five Days. The full-month January Barometer has a presidential-election-year record of 13 of the last 16 full years following January’s direction.

 

Our flagship indicator, the January Barometer created by Yale Hirsch in 1972, simply states that as the S&P goes in January so goes the year. It came into effect in 1934 after the Twentieth Amendment moved the date that new Congresses convene to the first week of January and Presidential inaugurations to January 20.

 

The long-term record has been stupendous, an 87.9% accuracy rate, with only eight major errors in 65 years.  Major errors occurred in the secular bear market years of 1966, 1968, 1982, 2001, 2003, 2009, 2010 and 2014. The market’s position on January 31 will give us a good read on the year to come. When all the Santa Claus Rally, the First Five Days and January Barometer are in agreement, it has been prudent to heed their call.

 

 

 

As a reminder, our “Free Lunch” strategy is purely a short-term strategy reserved for the nimblest traders. Traders and investors tend to get rid of their losers near yearend for tax loss purposes, often driving these stocks down to bargain levels. Our research has shown that NYSE stocks trading at a new 52-week low on or about December 15 will usually outperform the market by February 15 in the following year. We have found that the most opportune time to compile our list is on the Friday of December triple witching.

 

This strategy takes advantage of several year-end patterns and indicators. First, the stocks selected are usually technically, deeply oversold and poised for a bounce, dead cat or otherwise. Second, all of the stocks are of the small- and mid-cap variety that will benefit from the January Effect which is the tendency for small-caps to outperform large-caps from mid-December through February. Lastly, the strategy spans the usually bullish Santa Claus Rally and the First Five Days of January.

 

To be included in this list, the stock must have traded at a new 52-week low on Friday, December 16, 2015. Then, preferred stocks, funds, splits, special high dividends, new issues, trusts, LP’s and MLP’s were eliminated. To remain on this year’s list, the stock had to still be trading at $1.00 or higher as several online trading platforms place additional restrictions on a trade when shares are below $1.00. Furthermore, the stock must have traded at least 100,000 shares on Friday and have a market cap of at least $45 million, but not greater than $10 billion. Finally, any stock that was not down 30% or more from its 52-week high to the 52-week low reached on Friday was also eliminated.

 

Our suggested guidelines for trading these Free Lunch stocks is to initiate a position at a price no greater or less than 2% of Friday’s closing price and to implement a 5% trailing stop on a closing basis from your execution prices. So if the stock closes below 5% of the execution price or a subsequent high watermark, then the stock would be closed out of the portfolio. If any of these stocks trades in a window between -2% to +2% of Friday’s closing price it will be tracked in the Almanac Investor Stock Portfolios using the trade’s execution price with a 5% trailing stop on closing basis.

 

1. Consider selling them as soon as you have a significant gain and utilizing stop losses. 

2. The stocks all behave differently and there is no automatic trigger point to sell at. 

3. Standard trading rules from the Almanac Investor Stock & ETF Portfolios do not apply for these stocks. 

4. We think you should be out of all of these stocks between the middle of January and the middle of February. 

5. Also, be careful not to chase these stocks if they have already run away.

 

 

 

 

I had the pleasure of joining Danny Riley and the rest of our friends at MrTopStep.com for a roundtable discussion on “Trump vs. the S&P 500 2017”. Danny led the discussion that was focused on what you can expect from the markets in the first year of the Trump Presidency. 

 

Two main themes emerged from this discussion and I believe they are rather instructive and accurate. Number 1: Can Trump thread the needle and execute on all fronts or will he fail? If he succeeds, the market should be off to the races. If he fails, look out below. Second, market volatility is likely to pick up dramatically next year. 

 

What was most surprising was the massive range that was discussed from a high end of over 2700 on the S&P 500 in a best case scenario to a low in the S&P 1500-1600 range near the year 2000 and 2007 tops. I was most astonished at my friend Danny Riley’s call, which he warned us about, that 2017 would see the largest correction we’ve seen in a long while. 

 

We will issue our official 2017 Annual forecast next Thursday, but for now here’s how we expect the rest of the month to shake out and a little sneak peek at our outlook for 2017. 

 

After tomorrow’s Triple Witching Options Expiration, things will likely calm down as volume shrinks ahead of Christmas and after expiration. Stocks will likely drift sideways with a slight seasonal bullish bias the week after Triple Witching, fueled even more this year by window dressing as managers chase gains pushing money into the market to make portfolios look best for clients and rating agencies. 

 

Then look for the Santa Claus Rally to deliver solid, yet modest gains after Christmas, before yearend, pushing the major averages to new highs. Expect weakness on the last day of the year as traders and managers squaring positions and leave early for New Year’s celebrations. With the market running so hot since the election into yearend, the recently more pronounced “January Break” is likely to kick in as profit taking ensues in the New Year, especially with the prospects for lower taxes in 2017. 

 

Once Mr. Trump is inaugurated on January 20 all eyes will be on him and the bottom line is that more than ever, the performance of the stock market hinges on this one man’s ability to execute. Economic numbers are on the up as was apparent with the recent FOMC rate increase. Inflation is perking up and rates are on a path to normalization. 

 

If this man can thread the needle and bring about positive change to the federal government, get massive infrastructure projects rolling across the country in short order, create more real jobs and deal tactically and diplomatically on the international front all while not ruffling too many feathers, we are off to the races.

 

If not and he slips into a pattern of tangential tweets and commentary below his office and his cabinet and other appointees run into snafus with the Senate as well as instigating trade wars and offending our allies, we could be in store for a nasty bear market beginning around mid-2017.

 

Whatever your politics or ideology, what this man does or does not do could directly impact your portfolio. It is at times like these that we find history and historical and seasonal market patterns most important, when used in conjunction with fundamentals and technicals. We will continue to provide guidance according to our evaluation of cycles and seasonal pattern combined with our analysis of market and economic data and price and indicator readings.

 

Are we at a point that’s more like early 1980s or the late 1960s and early 1970s? I think we are much closer to the beginning of the next secular bull and Super Boom then the end. Perhaps the low we had in February 2016 was our August 1982 moment. Trump will tell.

 

 

Tomorrow is the last scheduled Fed meeting of 2016. It is widely anticipated the Fed will do the same thing it did during its last meeting in 2015, raise its lending rate. Based upon the CME Group’s FedWatch Tool, the probability of a hike stands at 95.4%. But, before getting overly concerned, the new range for the rate of 0.5 to 0.75% is still very low by historical standards.

 

In the following chart the 30 trading days before and after the last 70 Fed meetings (back to March 2008) are graphed. There are three lines, “All”, “Up” and “Down.” Up means the S&P 500 finished announcement day with a gain, down it finished with a loss. Down announcement days have generally been the best buying opportunities while up announcement days were often followed by weakness. 

 

Of the last 70 announcement days, the S&P 500 finished the day positive 42 times. Of these 42 positive days S&P 500 was down 24 times (57.1%) the next day with an average loss of .30% across all 42 positive announcement occurrences. Of the 28 days S&P 500 was down on announcement day, the following day was down 16 times (57.1%) with an average loss of 0.38%.

 

 

 

With limited exceptions, positions in the ETF Portfolio have been performing well in the current market rally. Traditional defensive sectors, like Consumer Staples, Healthcare and Telecom, have lagged. These sectors also tend to be rate sensitive and the Fed’s likely rate increase is most likely contributing. Earlier this month, we unloaded iShares DJ US Telecom (IYZ) at a modest 1.4% gain excluding dividends and any trading fees. We also sold iShares PHLX Semiconductor (SOXX) for just a 1.7% gain. Both IYZ and SOXX seasonally favorable periods ended in early December. Both appeared to be rolling over then, but have recovered since. If not already closed out, current strength could make a better exit point.

 

SPDR Financial (XLF) traded above its Auto-Sell price of $23.53 on December 8 and was sold on that day for a 23.5% gain. XLF appears heavily overbought and stalling out right around current levels. XLF has risen over 20% since two days before Election Day. This is a significant move that may not hold especially if the Fed remains dovish this week. Consider taking profits now if you have not already done so. The financials’ rally has been driven by the prospects of potentially fewer regulations and a steepening yield curve.

 

Big tech was the big winner during the summer, but it has been lagging during the current rally as money moved out of tech into other sectors of the market. Positions like iShares DJ US Tech (IYW), SPDR Technology (XLK) and even PowerShares QQQ (QQQ) are essentially flat over the past month. The NASDAQ 100 index and QQQ did make new intra-day highs today and will likely close at new highs. Should the breakout hold, our tech-related positions, IYW, XLK and QQQ could easily and quickly catch up to the rest of the portfolio.

 

Of the three most recent trade ideas, only iPath Bloomberg Copper (JJC) has been added to the portfolio. JJC was added today at $30 and its return will be calculated when the portfolio is next updated. SPDR Energy (XLE) and Global X Copper Miners can still be considered on dips below their respective buy limits.

 

Although there was scant first-half December weakness this year, the month is still likely to finish well. It is the best S&P 500 month since 1950 and second best for DJIA. Excluding the three most recent trade ideas, all other positions are on Hold. Please see table below for Current Advice and note updated stop losses for many of the positions held. 

 

 

 

Prior to Dow Jones Industrial Average’s November 10th close it had been just 87 calendar days without a new all-time DJIA high. DJIA’s previous record high close was on August 15, 2016. Historically, this is a relatively brief period of time as DJIA went 3,583 days from January 11, 1973 until November 3, 1982 without a new all-time high. Even that dry spell palls in comparison to the 9,212 day stretch (25+ years) following DJIA’s peak on September 3, 1929. Historically, new all-time highs have been bullish and generally result in additional new highs. When new DJIA record highs begin to arrive less frequently, then it may be time for caution and/or concern. Generally, the longer DJIA goes without a new record high close, the worse its performance has been historically.

 

We thinned out the 951 previous all-time highs to include just those that came at the end of a streak of new highs based upon the number of calendar days before DJIA reached the next new all-time high close. Three groups were created, 30-, 60- and greater than 90-days till the next new all-time high. In this case the longer DJIA went without a new all-time high, the greater the average loss was.

 

 

 

In the three weeks since last update, S&P 500 was up 3.0% while Russell 2000 gained 4.8% as of yesterday’s close. The Almanac Investor Stock Portfolio’s blend of cash and long positions resulted in a respectable 2.7% overall gain over the same time period. Large-cap stocks in our portfolio performed best, advancing 4.3%. Mid-caps were second best climbing 3.5% while Small-caps lagged (largest cash position), up just 2.1%.

 

Although we missed a few opportunities from the Mid-September Stock Basket, the majority was added to the Stock Portfolio and has been performing well since Election Day. The ten positions from this basket are collectively averaging a 21.6% gain as of yesterday’s close. IES Holdings (IESC) is the best, up 47.4%. The worst is Corelogic Inc (CLGX), down 5.9%. Because CLGX has not participated in the current rally, we are going to close this position out before it gets any worse. Sell CLGX.

Action: SELL CLGX

 

Sabra Healthcare REIT (SBRA) is the second worst performing position in the portfolio, up just 5.5%. In hindsight, this position was entered early as it traded below $20 per share just ahead of Election Day. However, unlike CLGX, SBRA has rallied recently and is now more than 20% higher from its early November lows. We will continue to Hold SBRA.

 

Aside from previously mentioned positions, all other positions are on Hold. We will allow the winners to run. As a reminder, should LDL trade above $65.80 or UNH trade above $164.08, half of the position can be sold as per standard policy of selling half on a double. 

 

Please refer to the updated portfolio table below for Current Advice about each specific position. Due to recent gains, please note that many stop losses have been updated.

 

 

 

Copper has a tendency to make a major seasonal bottom in December and then a tendency to post major seasonal peaks in April or May. This pattern could be due to the buildup of inventories by miners and manufacturers as the building construction season begins in late-winter to early-spring. Auto makers are also preparing for the new car model year that often begins in mid- to late-summer. Traders can look to go long a May futures contract on or about December 14 and hold until about February 23. In this trade’s 44-year history, it has worked 28 times for a success rate of 63.6%. This trade produced gains in ten of eleven years from 2001 to 2011, but has been down four years straight. Last year’s loss could have been avoided with a few more days of holding the long position into early March when copper briskly rebounded.

 

Cumulative profit, based upon a single futures contract excluding commissions and fees, is a respectable $68,988. Better than one-fourth of that profit came in 2007, as the cyclical boom in the commodity market magnified that year’s seasonal price move. However, this trade has produced other big gains per single contract, such as a $14,475 gain in 2011, and even back in 1973, it registered another substantial $9,475 gain. These numbers show this trade can produce big wins and big losses if not properly managed. A basic trailing stop loss could have mitigated many of the losses.

 

 

In the following chart, the front-month copper futures weekly price moves and seasonal pattern are plotted. Typical seasonal strength in copper is highlighted in yellow. Ahead of Election Day, copper was already beginning to make a move and once Trump was declared the winner, it rocketed higher on potentially higher domestic growth and infrastructure spending. But, even at current levels, copper is still well off its highs from 2011 near $4.50 a pound. The move higher could continue especially if Trump is successful in his first 100 days in office. 

 

 

One option to take advantage of copper’s seasonal move is iPath Bloomberg Copper TR Sub-Index ETN (JJC). As a reminder, ETNs differ from ETFs. An ETN is debt whose current value is based upon an index return. In the case of JJC, it is linked to the Bloomberg Copper Total Return Index, which represents the potential return of an unleveraged investment in copper futures. JJC trading volume is on the light side, trading around 70,000 shares per day on average over the past three months, but it does pick up when copper moves. JJC could be considered on dips below $30.00. Once purchased a stop loss of $27.50 is suggested. This trade will be tracked in the Almanac Investor ETF Portfolio.

 

 

Another way to gain exposure to copper and its seasonally strong period is through the companies that mine and produce copper. Global X Copper Miners ETF (COPX) holds shares of some of the largest copper miners and producers from across the globe. Its top five holdings as of December 5, 2016 are: Hudbay Minerals, Freeport-McMoRan, KAZ Minerals, Vedanta Resources and Antofagasta. COPX could be considered on dips below $21.50. If purchased, an initial stop loss of $19.40 is suggested. This trade will also be tracked in the ETF Portfolio.

 

 

Tomorrow’s jobs report will be the last before the Fed meets on December 13-14. The trajectory of the labor market has been reasonably solid with consistent monthly gains since around early 2011. The Fed is widely expected to raise the Fed funds rate this December and since the median estimate for the report is 200,000 net new jobs, it is highly likely to have little impact on the Fed’s decision. 

 

However, the market has generally responded favorably to the December jobs report. Over the last 15 years DJIA, S&P 500, NASDAQ, Russell 1000 & 2000 have all advanced 11 times on the day of the December jobs report. Average gains range from 0.46% for DJIA to 0.71% for Russell 2000. Since 2008, the worst decline was 0.38% by NASDAQ in 2012.

 

 

 

Oil companies typically come into favor in mid-December and remain so until late April through early July in the following year (yellow box in chart below). This trade has averaged 11.9%, 11.6%, and 7.5% gains over the last 15-, 10-, and 5-year periods, This seasonality is not based upon the commodity itself; rather it is based upon NYSE ARCA Oil & Gas index (XOI). This price-weighted index is composed of major companies that explore for and produce oil and gas. 

 

Crude oil’s plunge from over $100 per barrel in 2014 to the lows of earlier this year resulted in a similar dive of XOI. After years of fighting U.S. producers, OPEC appears to finally have come to an agreement to curtail production. As a result crude oil has surged this week and many company’s stocks are following suit. If OPEC can stick to the agreement and actually cut production, higher crude prices should lead to higher profits and stock prices.

 

 

SPDR Energy (XLE) is the top pick to trade this seasonality. A new position in XLE could be established on pullbacks with a buy limit of $73.30. Employ a stop loss of $65.97. Take profits at the auto sell of $90.22. Exxon Mobil is the top holding in XLE at 16.55%. The remaining top five holdings of XLE are Chevron, Schlumberger, Pioneer Natural Resources and EOG Resources.

 

 

 

Three sector seasonalities come to an end in December: Gold & Silver, Semiconductor, and Telecom. SPDR Gold (GLD) was stopped out on November 18 when it closed below 115.50. A stronger U.S. dollar, a highly likely Fed rate hike and a broad rotation out of defensive sectors were the primary reasons for gold’s retreat. 

 

iShares DJ US Telecom (IYZ) and iShares PHLX Semiconductor (SOXX) can be sold. IYZ had a modest 1% gain at yesterday’s close. SOXX was up 6.4% prior to today’s sharp selloff. IYZ and SOXX will be closed out using their respective average daily prices on December 2.

 

Since Election Day the odds of a December Fed hike have steadily increased as incoming data has held up and major indices broke out to new all-time highs. Defensive and/or interest rate sensitive sectors like Consumer Staples, Healthcare and Real Estate have slipped as a result. The selloff is likely overdone considering the Fed will most likely only move 0.25% and end up in a holding pattern again. As a result, XLP, XLV and VNQ can still be considered at current levels.

 

Technology shares have also been somewhat beaten up recently as money appears to be leaving this area of the market for other places like Financials and Transports. This is most likely a temporary condition and money will return. IYW, XLK and QQQ can also be considered at levels for new and/or additional purchases up to their respective buy limits.

 

Excluding previously mentioned positions, all others are on Hold for now. If the market follows the typical December pattern, there will likely be another buying opportunity around mid-month. Please see table below for Current Advice and note updated stop losses for many of the positions held.