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March 2017 Trading & Investment Strategy
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By:
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February 28, 2017
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Market at a Glance - 2/28/2017
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By:
Christopher Mistal
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February 28, 2017
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2/27/2016: Dow 20837.44 | S&P 2369.75 | NASDAQ 5861.90 | Russell 2K 1407.97 | NYSE 11558.35 | Value Line Arith 5502.38
Psychological:
Bullish. According to the most recent
Investors Intelligence Advisors Sentiment survey bulls are at 61.2%, bears at 17.5% and correction at 21.3%. The spread between bulls and bears is elevated and in the uncomfortable zone. It does not mean the rally’s end is imminent it suggests now may not be the best buying opportunity.
Fundamental: Mixed. Solid Q4 corporate earnings, new all-time highs, reasonably healthy labor and housing markets, inflation trending in the desired direction all point to a firm overall economy in the U.S. However, growth, as measured by GDP, seems to be lacking. At 1.9% for Q4 2016 and 1.6% for all of 2016 and only around 2% expected in the current quarter there is room for improvement. At some point the market may no longer be satisfied with expectations for future growth and instead demand more immediate results.
Technical: Overbought. Stochastic, relative strength and MACD indicators applied to DJIA, S&P 500, NASDAQ and Russell 2000 are either signaling overbought or in the case of Russell 2000, nearly overbought conditions. Another period of consolidation, similar to late-December into January, would alleviate the condition and would likely pave the way even higher. Russell 2000 just barely participated in the recent break out to new all-time highs and its next move could signal where DJIA, S&P 500 and NASDAQ’s head.
Monetary: 0.50-0.75%. March does host an FOMC meeting, although expectations of another increase in interest rates still remains low. Even if expectations were to change between now and then, and they did decide to increase, interest rates would still be highly accommodative within historical context and not a significant drag on economic activity. Besides, many large multi-national corporations can borrow outside of the U.S. at even lower rates.
Seasonal: Bullish. Normally a decent performing market month, post-election year payments to the Piper take a toll on March as average gains are trimmed. In post-election years March ranks: 5th worst for DJIA and Russell 1000; NASDAQ is 4th worst while S&P 500 and Russell 2000 are the best at 6th worst.
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March Outlook: Homestretch of “Best Six Months”
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By:
Jeffrey Hirsch & Christopher Mistal
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February 28, 2017
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Jeff is reporting in from
The TradersExpo New York after just stepping off the stage of his afternoon presentation. Similar to other recent appearances the mood in the audience at his workshops and crowd at the event was engaged and looking for answers, but with a decent level of anxiety and concern about the continuation of this “Trump Rally.” Perhaps our
Best Six Months seasonal patterns have something to do with it, but one cannot deny the performance since the election has been above average.
Mr. Trump’s speech tonight to a joint session of Congress may provide deeper insight into what will actually be implemented by this brand new administration. The market itself continues to price in success with accelerating economic growth that will positively impact the stock market.
But as with the skeptical sentiment Jeff has been sensing on his radar comments like, “With the Dow Jones Industrial Average posting gains in every session since the president promised a ‘phenomenal’ plan to cut taxes, the risk of investor disappointment is high,” from
Bloomberg News’ Five Things You Need to Know to Start Your Day, underscore the underlying level of worry in the media, on Main Street and Wall Street.
This is clearly creating a classic “Wall of Worry” the market loves to climb. Continuing market strength triggered positive readings across the board for our
January Indicator Trifecta and outstanding market gains in February as well. While we always remain vigilant for changes in the market climate we are currently in a bullish phase as the last two months of the Best Six Months get under way tomorrow and
market strength tends to beget more market strength.
As we settle in for the homestretch of the Best Six Months enjoying solid gains in our stock and ETF portfolios since our MACD Buy Signal on October 24, 2016, let’s all remember the upcoming seasonal and cyclical trouble spots at the end of March/Q1 after the first Triple Witching of 2017 and potentially the Trump Administration. It’s looking more likely the Fed will hike again at the March meeting and the market’s reaction to that will be instructive.
Also, be ready to shift into defensive/risk off mode any time after April 1st when we issue our Best Six Months Seasonal MACD Sell Signal. That does not mean do anything on April 1 per se, but know that we can get our Sell Trigger any time after April 1. It might not come until well into May, but be ready. Despite our research on the outperformance of
The Worst Six Months in Post-Election Years with a Positive January Indicator Trifecta, this may very well be an apropos year to heed the Seasonal Sell Signal.
However, this will not be a signal to dump everything and go short or into cash. It is the time for portfolio house cleaning and to prepare some defensive trades, positions and portfolio maneuvers. In keeping with our Golden Rule of investing, we will sell losers and underperforming positions and let our winners ride. Stops will tightened up on remaining positions and we will begin to deploy downside risk protection as merited by market events and conditions and our analysis of them.
Pulse of the Market
DJIA’s struggles with 20,000 ended at the start of February when it finally broke out to new all-time highs (1). As of yesterday’s close, DJIA was on a record matching streak of 12 consecutive new all-time highs. The last streak of this duration was in January 1987. A positive DJIA close today would be a new record, 13 consecutive new all-time highs. This streak is nothing to fear; only when new highs dry up is caution warranted.
As a result of DJIA’s thrust higher in February both the faster and slower moving MACD indicators (2) are positive. However, DJIA’s recent sluggish trading is beginning to weigh on these indicators and both are beginning to show signs of losing momentum. At some point, DJIA will take another breather to consolidate recent gains. Historically early March has been a time when this occurred.
Over the last 20 weeks, DJIA (3) has been leading the way higher with 14 weekly gains for a cumulative 2581.27 DJIA points. S&P 500 (5) and NASDAQ (6) have been catching up recently with five straight weekly gains each compared to DJIA’s four of the last five. Solid gains on Fridays and the following Monday (4) is a sign of confidence in the market and less fear or headline risk over the weekend.
NYSE Weekly Advancers and Decliners (7) continue to favor the bulls, but the ratio of Advancers to Decliners is shrinking. A larger margin of Advancers to Decliners would signal broader participation in the rally while the current dwindling ratio is suggesting the rally is stretched and in need of a pause. Continued new all-time highs accompanied by an expanding number of weekly advancers would be a signal the rally has further to go. At present, it appears to be about to stall.
NYSE Weekly New Highs (8) resumed trending higher at the start of February, but slipped last week. February’s New High peak of 504 is well below mid-December’s 676. Here again is a sign of a narrowing rally that could be in its twilight. NYSE Weekly New Lows remain subdued at less than 60 each week in 2017. This pattern is not likely to change until there is a meaningful pullback of at least 5%.
Contrary to many investor and trader sentiment surveys, Weekly CBOE Put/Call (9) readings have been largely neutral in a range between 0.60 and 0.70. There have been six readings outside of this range over the last 20 weeks. The highest reading of 0.80 (week ending November 4) accompanied a 1.9% weekly S&P 500 loss. The lowest reading of 0.53 (week ending December 9) saw S&P 500 jump 3.1%.
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March Almanac: Strength Early, Weakness Late
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By:
Christopher Mistal & Jeffrey A. Hirsch
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February 23, 2017
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Tempestuous March markets tend to drive prices up early in the month and batter stocks at month end. Julius Caesar failed to heed the famous warning to “beware the Ides of March” but investors have been served well when they have. Stock prices have a propensity to decline, sometimes rather precipitously, during the latter days of the month.
March is the end of the first quarter, which brings with it Triple Witching and an abundance of portfolio maneuvers from The Street. March Triple-Witching Weeks have been quite bullish in recent years, DJIA up 9 of the last 11. But the week after is the exact opposite, DJIA down 19 of the last 29 years—and frequently down sharply for an average drop of 0.5%. Notable gains during the week after for DJIA of 4.9% in 2000, 3.1% in 2007, 6.8% in 2009, and 3.1% in 2011 are the rare exceptions to this historically poor performing timeframe.
Normally a decent performing market month, post-election year payments to the Piper take a toll on March as average gains are trimmed significantly (see Vital Statistics table below). In post-election years March ranks: 5th worst for DJIA and Russell 1000; NASDAQ is 4th worst while S&P 500 and Russell 2000 are the best at 6th worst. In 11 post-election years since 1973, NASDAQ has advanced just five times, most recently in 2013 (+3.4%).
Saint Patrick’s Day is March’s sole recurring cultural event. S&P 500 gains on Saint Patrick’s Day have proved to be greater than the gains on the day before or the day after over the last 31 years. The fact that the holiday often lands in bullish option expiration week is the most likely reason its respectable record.
Since 1986, the S&P 500 posts an average gain of 0.49% on Saint Patrick’s Day (or the next trading day when it falls on a weekend), a gain of 0.20% the day after and the day before averages a 0.27% advance.
After St. Patrick’s Day, bullish days virtually disappear. Only the 24th is bullish while March 21, 23 and 28 are bearish. It is this part of the month that has been prone to declines as end-of-quarter portfolio restructuring can trigger broad weakness. The frequency of important/major economic data also declines.
| March (1950-2016) |
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DJI |
SP500 |
NASDAQ |
Russell
1K |
Russell 2K |
| Rank |
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5 |
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4 |
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6 |
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4 |
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3 |
| #
Up |
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44 |
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44 |
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29 |
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26 |
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28 |
| #
Down |
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23 |
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23 |
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17 |
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12 |
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10 |
| Average
% |
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1.2 |
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1.2 |
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0.9 |
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1.2 |
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1.5 |
| 4-Year Presidential Election Cycle Performance
by % |
| Post-Election |
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0.4 |
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0.6 |
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-0.3 |
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0.8 |
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1.2 |
| Mid-Term |
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1.3 |
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1.3 |
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1.7 |
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2.0 |
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2.8 |
| Pre-Election |
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2.0 |
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1.9 |
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3.1 |
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2.0 |
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3.1 |
| Election |
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1.0 |
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1.2 |
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-0.9 |
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0.1 |
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-1.1 |
| Best & Worst March by % |
| Best |
2000 |
7.8 |
2000 |
9.7 |
2009 |
10.9 |
2000 |
8.9 |
1979 |
9.7 |
| Worst |
1980 |
-9.0 |
1980 |
-10.2 |
1980 |
-17.1 |
1980 |
-11.5 |
1980 |
-18.5 |
| March Weeks by % |
| Best |
3/13/09 |
9.0 |
3/13/09 |
10.7 |
3/13/09 |
10.6 |
3/13/09 |
10.7 |
3/13/09 |
12.0 |
| Worst |
3/16/01 |
-7.7 |
3/6/09 |
-7.0 |
3/16/01 |
-7.9 |
3/6/09 |
-7.1 |
3/6/09 |
-9.8 |
| March Days by % |
| Best |
3/23/09 |
6.8 |
3/23/09 |
7.1 |
3/10/09 |
7.1 |
3/23/09 |
7.0 |
3/23/09 |
8.4 |
| Worst |
3/2/09 |
-4.2 |
3/2/09 |
-4.7 |
3/12/01 |
-6.3 |
3/2/09 |
-4.8 |
3/27/80 |
-6.6 |
| First Trading Day of Expiration Week: 1990-2016 |
| #Up-#Down |
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20-7 |
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19-8 |
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14-13 |
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17-10 |
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15-12 |
| Streak |
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U5 |
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D1 |
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U4 |
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D1 |
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D1 |
| Avg
% |
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0.2 |
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0.1 |
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-0.2 |
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0.06 |
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-0.3 |
| Options Expiration Day: 1990-2016 |
| #Up-#Down |
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14-13 |
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17-10 |
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11-16 |
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15-12 |
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10-16 |
| Streak |
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U2 |
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U2 |
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U2 |
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U2 |
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U2 |
| Avg
% |
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0.2 |
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0.1 |
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-0.1 |
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0.1 |
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-0.1 |
| Options Expiration Week: 1990-2016 |
| #Up-#Down |
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20-7 |
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20-7 |
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17-10 |
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19-8 |
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15-12 |
| Streak |
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U5 |
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U5 |
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U5 |
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U5 |
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U5 |
| Avg
% |
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1.1 |
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0.9 |
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0.03 |
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0.8 |
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0.3 |
| Week After Options Expiration: 1990-2016 |
| #Up-#Down |
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10-17 |
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7-20 |
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13-14 |
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7-20 |
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13-14 |
| Streak |
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D2 |
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D5 |
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D4 |
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D5 |
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D5 |
| Avg
% |
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-0.3 |
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-0.1 |
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0.2 |
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-0.1 |
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0.1 |
| March 2017 Bullish Days: Data 1996-2016 |
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1,
7, 14, 15 |
1,
3, 7, 13, 15 |
1,
3, 13, 17 |
1,
3, 7, 13, 15 |
3, 7, 13, 17 |
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17,
27 |
17,
24 |
20,
27 |
17,
24 |
27, 31 |
| March 2017 Bearish Days: Data 1996-2016 |
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21,
23, 24, 28, 31 |
21,
23, 28 |
2,
21, 28 |
21,
23, 28 |
10, 28 |
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March 2017 Strategy Calendar
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By:
Christopher Mistal
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February 23, 2017
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ETF Portfolio Updates: Warm Weather Tanks Natural Gas
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By:
Christopher Mistal
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February 21, 2017
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In the following charts 2017 is compared to all past Post-Election Years, all past January Trifecta years and past Post-Election Years that also had a positive January Trifecta. 2017 DJIA and S&P 500 performance has (or very nearly) caught up with the bullish positive January Trifecta pattern while NASDAQ is actually exceeding past averages. Taking the most bullish of these patterns, past Post-Election Years with a positive January Trifecta, and applying them to current market levels results in some rather large numbers by yearend; DJIA 23940, S&P 500 2776 and NASDAQ 6804.
![[DJIA Trifecta Seasonal Pattern Chart]](/UploadedImage/AIN_0317_20170221_TriFecta_Pattern_DJIA.jpg)
![[S&P 500 Trifecta Seasonal Pattern Chart]](/UploadedImage/AIN_0317_20170221_TriFecta_Pattern_SP500.jpg)
![[NASDAQ Trifecta Seasonal Pattern Chart]](/UploadedImage/AIN_0317_20170221_TriFecta_Pattern_NASDAQ.jpg)
Back in December we released our
Annual Forecast for 2017 and laid out three scenarios; worst case, base case and best case with probabilities attached to them. Worst case was a mild bear market with a 5% chance. Base case was for continued tepid economic growth and single-digit to low double-digit gains, 65% chance. Our best case of 20% plus gains, based upon an acceleration of growth, tax reform, healthcare reform and infrastructure buildout, had a 30% chance. The longer the market keeps making new all-time highs, the better the odds are for the best case scenario to play out, but we still await signs of and confirmation of acceleration in growth, tax and healthcare reform and infrastructure buildout.
Portfolio Updates
Since issuing our
Seasonal MACD Buy Signal for the “Best Six/Eight Months” after the close on October 24, corresponding positions in
SPDR DJIA (DIA),
iShares Russell 2000 (IWM),
PowerShares QQQ (QQQ) and
SPDR S&P 500 (SPY) are up an average 11.6% as of Friday’s close. IWM is the best performer, up 14.6%. These gains exclude any trading fees and any dividends issued. This is a respectable return given it has been less than four months and there are still two-plus months remaining in the “Best 6.” Due to recent gains, stop losses for
DIA, IWM, QQQ and SPY have all been raised and these positions are
on Hold.
Recent trade ideas from Seasonal Sector Trades Alerts earlier this month have been entered into the ETF Portfolio table below. United States Oil (USO) was added on the open on February 8 at $11.11 and was up 2.5% as of Friday’s close. USO could still be considered on dips below the original buy limit of $11.10.
Precious metal short trade idea, ProShares UltraShort Silver (ZSL) traded below its buy limit on February 10. As of today, ZSL is slightly in the green as silver has weakened. ZSL is also on Hold. DB Gold Double Short (DZZ) still has not traded below its buy limit and can still be considered on dips. Silver’s record of declines from mid-February to mid-April is more consistent than gold’s. Factor in the leverage of ZSL and DZZ and both of these trades should be closely monitored if executed.
Above average winter temperatures have spread across a large area of the U.S. which is reducing demand for natural gas for heating. As a result, natural gas prices have fallen taking United States Natural Gas (UNG) along with them. UNG was stopped out on February 16 when it closed below its stop of $7.29. UNG was closed out of the portfolio using its average price on the following day. Weather forecasts are currently well above average which is likely to put additional pressure on natural gas prices and could eventually lead to price declines in stocks of producers and explorers. Sell First Trust Natural Gas (FCG). For tracking purposes it will be closed out of the portfolio using its average price on February 22.
This month’s
ETF Trades new idea,
SPDR Utilities (XLU) has not yet traded below its buy limit and can still be considered on dips. XLU is modestly higher now than at the beginning of the month, but could still manage to dip below its buy limit especially if longer-term interest rates were to tick higher.
Updated stop losses and current advice for any position not mentioned above can be found in the portfolio table below.
Disclosure Note: At press time, officers of the Hirsch Organization, or accounts they control held positions in FCG, IWM, IYT, QQQ, SPY, VNQ, XLB, XLP, XLV and XLY.
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Nano-Cap Stock Speculation Special
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By:
Jeffrey A. Hirsch
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February 16, 2017
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In honor of Valentines and Presidents I have prepared for you today a special treat. It also lines up nicely with usual feeble market action in the last-half of February, the infamous weak link in the Best Six Months November-April.
In between several presentations I made at
The MoneyShow Orlando last week I also had the privilege of moderating a very interesting Nano/Micro Cap panel with two small public companies. I found one so particularly intriguing that I picked up a few shares myself on pure speculation. Upon further review, I thought I would share it with all of you.
Pressure Biosciences, Inc (PBIO) is not in the usual class of stock we present to you that come through our rigorous screens. All those stocks must by definition have both reported revenue and positive earnings (unless it’s a short trade). PBIO has revenue albeit small so far, but not positive earnings. The reason being it is much more early stage than we would normally bring to your attention.
There are three main reasons I found this stock attractive.
1. The technology and product look quite promising and is in one of our favorite long term sectors, biotech.
2. The stock price is way down, trading at a 52-week low and looks undervalued and unnecessarily low. So we are not chasing some runaway, hyped-up penny stock.
3. The CEO and founder, Richard Schumacher has a solid history in the industry of bringing startups and early stage companies to fruition.
The company’s patented pressure cycling technology (PCT) uses highly controlled hydrostatic pressure to crack open all types of cells with the minimum amount of pressure to “open” the cell up gently to preserve as much cellular material as possible for more effective results in research, testing and development in the biotechnology, pharmaceutical and other industries.
The PCT platform uses alternating cycles of hydrostatic pressure between ambient and ultra-high levels to safely and reproducibly control bio-molecular interactions. PBIO has installed over 250 PCT systems in approximately 160 sites worldwide. Over 100 publications cite the advantages of the PCT platform over competitive methods. Primary markets are in the biomarker discovery, drug discovery and design, and forensics areas. The technology also has been applied to bio-therapeutics characterization, soil & plant biology, vaccine development, and counter-bioterror.
Two weeks ago the company announced “CE” approval, which enables them to market and sell the product in Europe. They have just entered their second year with co-marketing partner SCIEX, a global leader in mass spectrometry and a trusted partner to scientists and lab analysts worldwide, which is a division of Danaher (DHR:NYSE).
There newest and improved PCT product, the Barocycler® 2320EXT (EXT for extreme) is computer controlled and allows the user more capabilities than previous models and has so far been well received by scientists and researchers. The plan is to hire or bring in a real sales force in Q1 2017 to ramp up sales of the new Barocycler.
The major hurdle and issue here is the potential dilution from a proposed share offering. This is what apparently knocked the stock down last fall into early 2017 from the mid-40-cent range to the current 15-16 cent range. The good news is it seems to have found support at 15 cents. The offering is intended to raise funds for expansion and to aid in getting the stock onto regular NASDAQ. In order to do that they stock needs to be trading at $4 or higher as required for a company traded publicly for three years and needs shareholder equity of $5 million.
The offering would give them the $5 mil in shareholder equity, but they will likely need to reverse split the stock to get the price up to the required level. The question is at what price they will be able to do the offering and reverse split. This is definitely a high-risk speculation, but the potential reward seems worth a shot for a small portion of your speculative capital.
BUYERS BEWARE the market makers seem to be working the stock rather heavily. So
USE LIMIT ORDERS, NOT MARKET ORDERS. Have patience, do not chase this stock. It’s been bouncing along the 52 week low for the past 3 weeks.
Use a Buy Limit of 16 cents. And by all means SELL HALF ON A DOUBLE. I urge you do your own due diligence and please read
PBIO’s S1 filing on the offering.
Disclosure Note: At press time, officers of the Hirsch Organization, or accounts they control held positions in PBIO.
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Stock Portfolio Updates: Let Winners Ride the Rally
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By:
Christopher Mistal
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February 14, 2017
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Once again the bull market has entered an extended period of strength that for some appears to defy logic and reason. S&P 500 has not experienced a daily loss in excess of 1% since October 11, 2016. Nor has it had a 5% correction since last June. Both are protracted time spans, but historically both have been exceeded before and by sizable amounts. The current bull market also managed to go nearly four years without a 10% correction. The brutal bear market that preceded it was unusual within historical context so it is not out of the question that the following recovery and associated bull market would be accompanied with some atypical behavior.
Using a 20% decline as the definition of a bear market, there have been 11 bull markets including the current one and 10 bear markets since 1949. The previous ten bull markets lasted an average of 1770 calendar days and produced gains of 161.4%. Within these 11 bull markets there were 23 corrections ranging from 10% to 19.9% for an average of just slightly more than two corrections per bull market. The current bull market, at 2898 days old and 244.1% gain is above average in duration, magnitude and number of corrections. However, there have been longer bull markets with even more corrections.
In the following table, each bull market has been broken down and includes the corrections that occurred within it. The bull markets beginning and end dates and closing prices are included and are used to calculate the “Days Between Corrections.” In each row labeled “Bull End,” that bull market’s duration and gain is calculated.
The quickest correction was 18 calendar days in 1955 while the longest was 531 from September 1976 to March 1978. The longest the S&P 500 went without a 10% correction was 2553 calendar days from October 1990 until October 1997. The second longest streak without a correction occurred in the last bull market that ended in 2007 when the S&P 500 went 1673 days. The fewest number of days between corrections was 35 in 1974.
The S&P 500’s current streak of 368 days is less than the average amount of time between corrections and is not of major concern. The previous streak lasted 1326 calendar days and ended with the S&P 500 sliding 14.2% over 266 days. Past bullish periods were often devoid of corrections. Low volatility and extended age do not kill bull markets, crumbling economic data and/or geopolitical/exogenous events do.
At this moment economic data is reasonably healthy and the expectation is for further improvement. Geopolitical and other outside risks do exist (always did and will), but the odds they will significantly upset the U.S. or global economy do not appear extremely elevated.
Portfolio & Free Lunch Updates
Over the nearly four weeks since last update, S&P 500 and Russell 2000 climbed 2.5% higher as of yesterday’s close. The Almanac Investor Stock Portfolio’s blend of cash and long positions resulted in a 1.0% overall gain over the same time period. Our Large-Cap portfolio produced the most gain at 2.2%. Mid-Caps were second at 1.3% and Small-Caps contributed just 0.7%. Were it not for the sizable cash position in the portfolio results could have been better. Arguably, the Stock Portfolio is under invested at this time of the “Best Six/Eight Months.” This is a situation we anticipate rectifying in the near-term with another basket of stocks.
The sole remaining stock from Free Lunch, Hanesbrands (HBI), was stopped out on February 3 when it closed below its 5% trailing stop loss of $22.64. On that day HBI reported disappointing earnings and offered tepid guidance that resulted in a single day loss in excess of 16%. HBI was closed out of the portfolio using its average price of $19.22 on February 6 for a 10.9% loss.
Aside from HBI, the rest of the portfolio has been performing. Lydall Inc. (LDL) is climbing towards doubling ($65.80) and Unitedhealth Gp (UNH) is even closer ($164.08). As a reminder, standard portfolio policy (detailed under portfolio table below) stipulates selling half the position on a double. This policy has served the portfolio well and we will continue to adhere to it here. However, other profit taking and/or protecting strategies can also be considered. A tighter trailing stop loss could be employed or a smaller (or larger) portion of the original position could be sold.
All positions in the portfolio are currently on Hold. Please refer to the updated portfolio table below for Current Advice about each specific position. Please note that many stop losses have been updated as a result of recent gains.
Disclosure Note: At press time, officers of the Hirsch Organization, or accounts they control held positions in ANET, BUSE, CCS, IESC, MHO and SBRA.
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Seasonal Sector Trades: Precious Metals Could Falter
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By:
Christopher Mistal & Jeffrey A. Hirsch
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February 09, 2017
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Over the years silver has peaked in February, most notably so in 1980 when the Hunt Brothers’ plot to corner the silver market was foiled. Our seasonal analysis shows that going short on or about February 17 and holding until about April 25 has worked 33 times in the last 44 years for a win probability of 75.0%. As you can see in the short silver table, the usual February silver break was trumped by the overarching precious metal bull market of 2002–2011 just four times in ten years.
After suffering losses for two years in a row in 2010 and 2011, this trade returned to success with its second best performance in 2012 as precious metals in general fell out of favor. This trade was then successful in 2013, 2014 and 2015. A shaky start for stock markets in early 2016 combined with multi-year lows for silver sparked fresh demand for the metal resulting in a loss last year.
In the above chart, silver’s weekly price bars appear in the top half of the chart and silver’s seasonal trend since 1972 appears in the bottom half. Typical seasonal weakness is highlighted in yellow. Historically, silver has declined from late-February/early-March until the end of June. This year, typical seasonal weakness has yet to materialize, but silver is nearing resistance around $18 per ounce. Silver has also posted a weekly gain for seven straight weeks and appears overbought.
![[ProShares UltraShort Silver Daily Bar Chart]](/UploadedImage/AIN_0317_20170209_ZSL.jpg)
ProShares UltraShort Silver (ZSL) is an inverse (bearish) ETF that seeks to return two times the inverse of the daily performance of silver bullion priced in U.S. dollars for delivery in London and is the choice to trade this seasonality in the Almanac Investor ETF Portfolio. Average daily trading volume can be light, but when silver declines in earnest, trading activity in ZSL does expand quickly. ZSL can be considered on dips below $30 or when silver trades above $18 per ounce. If purchased, employ a stop loss of $27.50.
Gold’s Can Follow Silver Lower
Seasonally, there is also a weak price period for gold from mid-February until mid to late June. Entering a short position on or about February 17 and holding until March 15 has been a successful trade 25 times in the past 42 years for a success rate of 59.5% with a cumulative profit of $43,840 per futures contract. However, in recent years holding onto the short position established in February longer has been more profitable.
The chart below is a weekly chart of the price of gold with the exchange-traded note (ETN) known as DB Gold Double Short (DZZ) overlaid to show the inverse price correlation between the two trading vehicles. The line on the bottom section is the 42-year average seasonal tendency showing the market’s directional price trend with seasonal weakness highlighted in yellow. DZZ trades 2x the inverse of the daily price change of a single gold futures contract.
As you can see in this next chart, DZZ is declining as gold is still climbing. Gold’s rally is likely to stall at resistance around $1250 per ounce, or about 1.5% higher than its current price. DZZ could be considered on dips below $5.80. If purchased a stop loss of $5.25 is suggested.
Both of today’s new trade ideas will be tracked in the Almanac Investor ETF Portfolio.
Disclosure Note: At press time, officers of the Hirsch Holdings Inc., or accounts they control did not hold a position in ZSL or DZZ, but may buy or sell at any time.
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Seasonal Sector Trades: Anticipating a Crude Oil Rally
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By:
Christopher Mistal & Jeffrey A. Hirsch
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February 07, 2017
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Crude oil has a tendency to bottom in mid-February and then rally through July (highlighted in yellow in second chart below) with the bulk of the seasonal move ending in late April or early May. It is that early February low that can give traders an edge by buying ahead of a seasonally strong period. Going long crude oil’s July contract on or about February 14 and holding for approximately 60 days has been a profitable trade 27 times in 33 years, including the last three years straight, for an 81.8% win ratio with a cumulative profit of $108,660 (based upon trading a single crude oil futures contract excluding commissions and taxes).
![[February Long Crude Oil (July) Trade History]](/UploadedImage/AIN_0317_20170207_CL_History.jpg)
Crude oil’s seasonal tendency to move higher in this time period is partly due to continuing demand for heating oil and diesel fuel in the northern states and partly due to the shutdown of refinery operations in order to switch production facilities from producing heating oil to reformulated unleaded gasoline in anticipation of heavy demand for the upcoming summer driving season. This has refiners buying crude oil in order to ramp up production for gasoline. Last year, crude bottomed in mid-February and that bottom was the end of crude’s multi-year bear market that began in earnest in 2014. The result was the second best performance in this trade’s history going back to 1984. Only 2008 was better.
![[Crude Oil (CL) Weekly Bars (Pit Plus Electronic) and Seasonal Pattern]](/UploadedImage/AIN_0317_20170207_CL_Seasonal.jpg)
Crude oil’s average price gain during its seasonally favorable period from mid-February to mid-May has been 9.3% since 1984. A similar move this year would lift crude from its current level around $52 per barrel to just over $56.80 per barrel over the next three months. Potential hurdles that could prevent this move are a strong U.S. dollar and stubbornly high global inventories. Catalysts for this move, and possibly more, are strong consumer confidence numbers and OPEC’s desire to regain pricing power. Geopolitical uncertainty could also provide a near-term lift to crude.
United States Oil (USO) is one choice from the ETF industry to implement this trade. USO is highly liquid trading in excess of 30 million shares daily and has net assets approaching $3 billion. Its stochastic, relative strength and MACD indicators are neutral to negative at this time as USO has been largely range bound since early December of last year. USO could be considered on dips below $11.10. If purchased, an initial stop loss of $9.75 is suggested. This stop loss is just below USO’s low close in November of last year. For tracking purposes, USO will be added to the Almanac Investor ETF Portfolio using tomorrow’s opening price.
Disclosure Note: At press time, officers of the Hirsch Organization, or accounts they control did not hold a position in USO.
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ETF Trades: Utilities Could Win Either Way
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By:
Christopher Mistal
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February 02, 2017
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Tomorrow morning the first jobs report of 2017 will be released. Earlier this week, ADP’s National Employment Report showed private sector employment increased 246,000 (seasonally adjusted) while the median forecast for tomorrow’s report is slightly below 200,000. This would be an improvement over last month and would confirm the U.S. labor market remains on firm ground.
The market has generally responded favorably to January’s jobs report. Over the last 16 years DJIA has advanced 9 times while S&P 500, NASDAQ, Russell 1000 & 2000 have all advanced 10 times on the day the January jobs report was released. Average gains range from 0.13% for NASDAQ to 0.49% for Russell 2000. After being up for seven years straight from 2008 to 2014, the market has fallen in each of the last two years.
New Sector Trade Idea
From the Stock Trader’s Almanac 2017, page 94, Sector Seasonality, there are two sectors that begin their seasonally favorable periods in March: High-Tech and Utilities. Adequate tech exposure remains in the Almanac Investor ETF Portfolio so we will pass on adding more. Last year, the Utilities sector started off the year on a near chart-perfect bullish climb from the bottom left to the top right that lasted until an early-July high.
So far this year Utilities have been somewhat dull, moving mostly sideways. The sector is not at all-time highs, but it is not too far away either. The sector is generally defensive in nature and does offer a relatively hefty dividend. This year could prove to be an interesting year for Utilities. If the Trump administration stumbles and disappoints the market, the defensive nature of the sector could attract traders and investors. However, if the new administration is successful and economic growth does begin to accelerate, then the sector could benefit from the increased demand that is likely to come from higher growth.
As can be seen in the following weekly bar chart of the Utility Sector Index (UTY), seasonal strength (lower pane, shaded in yellow) typically begins following an early March bottom and usually lasts through early October although the bulk of the move is typically done sometime in May.
With a little more than $6 billion in assets and average daily trading volumes in excess of 12 million shares per day, SPDR Utilities (XLU) is the top choice to hold during Utilities seasonally favorable period. It has a gross expense ratio of just 0.14% and comes with the added kicker of a 3.37% dividend yield. Top five holdings include: NextEra Energy, Duke Energy, Southern Co, Dominion Resources and Exelon Corp.
XLU could be bought on dips below $48.20. This is just above its projected monthly support (green-dashed line in daily bar chart below). Based upon its 15-year average return of 6.1% during its favorable period mid-March to the beginning of October, an auto-sell price of $56.25 is set. If purchased an initial stop loss of $44.00 is suggested.
Portfolio Updates
Even though this January was the first up January since 2013, gains were modest and thus gains in the ETF Portfolio were also modest. Tech performed well in January which helped lift our holdings in IYW, XLK and QQQ. The best performing holding in the portfolio overall, and in January, is Global X Copper Miners (COPX), up 16.9% since mid-December.
Some tepid earnings from the energy sector afforded the opportunity to add SPDR Energy (XLE) on the penultimate trading day of January. Energy prices have firmed and the market appears to have stabilized, but expectations may have been prematurely high given the relatively brief period of time since finding stability. This recent addition could prove timely as the summer driving season nears.
The anticipated mid-January break did materialize, however it was brief and mild. Neither ProShares UltraPro Short S&P 500 (SPXU) nor ProShares UltraShort S&P 500 (SDS) traded high enough to trigger an automatic sale during the weakness. Both were stopped out on January 25 when DJIA closed above 20,000 for the first time. Minor losses were recorded on both positions.
Positions in First Trust Natural Gas (FCG) and United States Natural Gas (UNG) targeting seasonal strength in natural gas have been added to the portfolio. A mild January has dampened demand for heating and inventories are still in the average range for this time of the year. Spring does not officially arrive for another six-plus weeks. Time remains for colder weather and higher natural gas prices.
Disclosure Note: At press time, officers of the Hirsch Organization, or accounts they control held positions in FCG, IWM, IYT, QQQ, SPY, VNQ, XLB, XLP, XLV and XLY.