Investor Alerts

15 January 2013

ETF Trades & Free Lunch Update:


ETF Trades & Free Lunch Update:


January 15,


Gold has a tendency to peak in January/early February

Dow: 61.9% S&P: 61.9% NAS: 52.4% R1K: 61.9% R2K: 61.9%

"Nothing gives one person so much advantage over another as to remain always cool and unruffled under all circumstances."
—Thomas Jefferson (3rd U.S. President, 1743-7/4/1826)

 Time to Digest Free Lunch GainsBy Christopher Mistal

Aided by the January Effect (2013 STA, page 104 & 108) of small caps outperforming large caps, since December 17, our 2012 Free Lunch Menu of 17 stocks making new 52-week lows on December 21 has performed well. As of yesterday’s close, the basket was up 19.6% compared to a NYSE Composite gain of 3.2% over the same period. Just one stock, Crossroads Systems (CRDS) turned sour. Herbalife’s (HLF) tumultuous past few weeks actually turned into the best short-term trade, gaining 61.6%.

Given the magnitude of the basket’s gains and the fact that the bulk of small cap outperformance is usually done by mid-January, the time has come to close out any remaining open positions. Or, at the least employ a trailing stop loss to ensure that these gains don’t vaporize just as quickly as they materialized. Our 2012 Free Lunch Menu of Bargain Stocks portfolio will officially be closed out on today’s close. We will publish the final results in Thursday’s Alert. 

2012 Free Lunch Stocks – January 14, 2013 Closes

Disclosure Note: At press time, officers of the Hirsch Organization no longer held any positions in the Free Lunch Stocks.

 Natural Gas Bear Market Likely Ended Last YearBy Christopher Mistal

In the Stock Trader’s Almanac 2013 there is a seasonal tendency, based upon the Amex Natural Gas Index (XNG), for natural gas companies to enjoy gains from the end of February through the beginning of June. Over the past 5, 10, and 15 years this trade has returned 18.2%, 14.3%, and 18.5% respectively. Concurrent with this is a featured trade on page 32 of the Commodity Trader’s Almanac 2013 that is based upon natural gas, the commodity. Both seasonalities have come under assault in recent years as natural gas was in a bear market after it peaked just shy of $16 per million British Thermal Units (Btu) in 2005 until last April when it traded at less than $2.00 per million Btu.

Sluggish economic growth and mild winters have kept demand in check while new discoveries and production technologies have contributed to a supply glut. Most, if not all of these conditions, still exist today. However, because of the sustained period of weak prices there has been some attrition and consolidation within the sector. As a result, producers are gaining better control of the supply of natural gas and prices did firm up in 2012. In fact, from its April 2012 low to its late November high, natural gas doubled in price. Natural gas has since pulled back and is attractive, especially as its seasonally strong period is about to begin. 

Natural Gas Weekly Bars (NG) and 1-Year Seasonal Pattern Since 1990

First Trust ISE-Revere Natural Gas (FCG) is an excellent choice to gain exposure to the company side of the natural gas sector. FCG can be bought on dips below $15.50. Once purchased, use a stop loss of $13.95 and take profits at the auto sell, $20.20. Top five holdings by weighting as of yesterday’s close are: Goodrich Petroleum (GDP), SM Energy (SM), Magnum Hunter Resources (MHR), Questar (STR), and Newfield Exploration (NFX). The net expense ratio is reasonable at 0.6% and the fund has nearly $400 million in assets. 

First Trust ISE-Revere Natural Gas (FCG) Daily Chart

Recently stopped out United States Natural Gas (UNG) is recommended to trade the commodity’s seasonality as its assets consist of natural gas futures contracts and is highly liquid with assets in excess of $1billion and average daily trading volume in excess of 8 millions shares per day on average over the past three months. UNG can be bought on dips below $18.50. If purchased, set an initial stop loss at $17.08 and take profits at the auto sell price of $20.35. 

United States Natural Gas (UNG) Daily Chart

ETF Portfolio Updates

Gold and Silver, Semiconductors, and Telecom all exited their historically favorable periods in December. Correlating positions in iShares DJ US Telecom (IYZ) and iShares PHLX SOX Semi 
(SOXX) should be closed out. For tracking purposes IYZ and SOXX will be closed out of the ETF Portfolio using today’s closing prices. Although gold and silver have been weak lately, the position in SPDR Gold (GLD) will not be sold as gold and silver have both demonstrated renewed strength in the first quarter over the past few years. GLD is on Hold. Internet, Computer Tech, Healthcare Providers, Pharmaceutical, and Utilities all exit their favorable periods this month. Sell First Trust DJ Internet (FDN), SPDR Technology (XLK), iShares DJ US Healthcare Provider (IHF), iShares DJ US Pharmaceutical (IHE), and SPDR Utilities (XLU). For tracking proposes these positions will also be closed out of the portfolio using closing prices from today.

Just one sector ends its seasonally favorable period in February, Healthcare Products. iShares Dow Jones US Medical Devices (IHI) is on hold and its stop loss has been raised to break even. Last month’s January Short Trades that targeted the Computer Technology and Internet sectors, rallied with the broader market at the start of the New Year. Because REW and TECS are leveraged ETFs and weakness has not yet materialized, no official trade recommendation is being made at this time. 

Almanac Investor ETF Portfolio – January 14, 2013 Closes

Disclosure Note: At press time, officers of the Hirsch Organization did not hold any positions in the securities mentioned in this article, but may buy or sell at any time.