ETF Trades: Core Four Up 6.4% Since Seasonal Buy Signal on October 5 By: Christopher Mistal | November 03, 2015 | Email | Print

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

 

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

 

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

 

 

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

 

 

 

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

 

 

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

 

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

 

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

 

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

 

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