Please take a moment and register for our member’s only webinar, November 2023 Outlook and Update on Wednesday November 1, 2023, at 2:00 PM EDT here:

 

https://register.gotowebinar.com/register/4946912155352590422         

 

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 November, 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.

 

 

10/26/2023: Dow 32784.30 | S&P 4137.23 | NASDAQ 12595.61 | Russell 2K 1657.00 | NYSE 14858.70 | Value Line Arith 8409.66

 

Seasonal: Bullish. November is the best month for S&P 500, Russell 1000 and 2000 and second best for DJIA and NASDAQ. November kicks off the “Best Six/Eight Months.” Pre-election year November performance has been softer, but average performance remains positive.

 

Fundamental: Mixed. Q3 GDP advance estimate was an impressive 4.9%, lead by strength in consumer spending, but personal savings retreated substantially suggesting the consumer could be strained to maintain their spending. Corporate earnings have also been mixed with high profile beats and nearly as big misses. Inflation has cooled but continues to run warmer than desired. Geopolitical tensions and uncertainty that were already elevated before Hamas attacked Israel are now about maxed out. Auto workers are still on strike and yet another federal government shutdown looms. 

 

Technical: Correction. Seasonal forces, geopolitical tensions, and interest rates have extended the market’s correction. DJIA, S&P 500 and NASDAQ have all slipped below their respective 200-day moving averages in search of support. Next levels of potential support are DJIA 32000, S&P 500 4100 and NASDAQ 12200. Technical indicators are at or near oversold levels.

 

Monetary: 5.25 – 5.50%. The Fed’s delicate balancing act of crafting a soft economic landing while fighting inflation continues. Uncertainty seems to only have grown as some data suggests that rates are sufficiently tight while other data points to even higher rates for longer. Persistent government spending is only making the Fed’s job harder.

 

Sentiment: Retreating. According to Investor’s Intelligence Advisors Sentiment survey Bullish advisors stand at 50.0%. Correction advisors are at 25.7% while Bearish advisors numbered 24.3% as of their October 25 release. Prior to this release bullish sentiment had risen for three weeks reaching a peak of 51.4% before the recent bout of weakness. Sentiment is essentially neutral now.

 

Once again, we find ourselves in a time of global turmoil in October. As the market enters the Best Six Months of the year the world is captivated by heightened geopolitical tensions. The Russia-Ukraine war helped drag stocks into a bear market in 2022. And now Hamas’ attack and Israel’s response has pushed the entire region and the rest of the world are on high alert. This is not new ground in the Mideast. The loss of life is terrible and unnecessary. 

 

What does this mean for the market? And what’s the history when turmoil grips the planet in October heading into the Best Six Months of the year? These are somewhat trick questions, and any answer is subjective. So, we tried to take an honest look at the current state of affairs. Since WWII there has been an ongoing war or international conflagration going on practically all the time. Things have come to a head in October many times with several happening in the Mideast. Current events in the Middle East are especially tense. It is the de facto global hotspot and has been since time immemorial. 

 

The following table is a selection of what we felt were some especially tense times in October just ahead of the Best Months that correlate with the current situation. It’s not a perfect dataset, but it does provide some perspective. We’ve tried to pinpoint the Recent High related to the crisis and then the nearest Subsequent Low around October. We have included the nearest Crisis Low, the Q4, Year, Best Six Months and Next Year % Changes. Remember many of these crises ran over more than one year and were impacted by multiple events and debacles. 

 

 

Egypt seized the Suez Canal in July 1956 and Israel attacked across the Sinai on October 29. Meanwhile, Russian tanks rolled into Hungary to crush the revolution that began on October 23. 1962 was marred by the Cuban Missile Crisis with the U.S. naval blockade lasting from October 22 to November 20. The 1973 Arab-Israeli War was right in the middle of the 1973-1974 bear market, which was also impacted by the subsequent Oil Embargo, Watergate, going off the gold standard and end of the Vietnam war.

 

The market held up pretty well in pre-election year 1979 despite the Iran Hostage Crisis, USSR invading Afghanistan, the 1980 recession and the Hunt Brothers attempt to corner the silver market in early 1980. The Kuwait War in 1990 was a blip with a mini bear and down year but a smart rally off the midterm low. 2001 and 2002 run together set off by 9/11, then the USA-Afghan War into the 2002 midterm low during the build up to the Iraq War in 2003. The market peaked in October of pre-election year 2007 in the early stages of the 2007-2009 Global Financial Crisis then fell apart in October 2008 with the ultimate low in March 2009.

 

Our overall observation of these tumultuous times is that these events exacerbated a market decline already in progress. We find ourselves today at a similar crossroads with the Hamas attack, Israel’s reaction and unrest in Mideast and on the world stage. We hope discretion is the better part of valor, but we must be prepared. If this situation can be contained the market will likely rally sharply. If it drags on or escalates that will likely negatively impact the market. 

 

 

As we noted in the past several issues, especially after our October 9 Best Six Months Seasonal MACD Buy Signal, near-term volatility is to be expected with some backfill throughout October. Unfortunately, our buy signal was a bit early, but we never promised we’d nail the exact low. And we still believe this weakness can be an opportunity to accumulate new long positions for the “Best Months” or add to existing. 

 

We are still in the seasonal weak window, and until proven otherwise the Best Months are set up well. DJIA has not even entered the 10% correction area and the Russell 2000 was up today, bouncing encouragingly off last year’s lows. Economic readings remain strong, especially GDP and jobs. We have been expecting a 5-10% correction since the summer. DJIA is down -8.0%. S&P -9.8% and NASDAQ is off -12.3%. As you can see in our updated seasonal charts this downdraft lines up with the late October lows. But if things hit the fan, we will pivot and respond accordingly and issue an interim special alert if we deem it necessary. 

 

We are reminded of the wise old words of the late Edson Gould: “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.” Stick with the system but remain calm and stay alert.

 

 

 

 

Early October gains were broad and lasted long enough to satisfy the criteria to issue our Seasonal MACD Buy Signal when the market closed on October 9 (1). Those gains were short-lived as war once again broke out between Israel and Hamas. Octoberphobia has struck, again, and DJIA is currently on track to finish the month in the red. DJIA is currently trading under both its 50- and 200-day moving averages (2), but it has not taken out its lows from earlier this year in March around 32000.

 

 

Earlier this week, DJIA recorded its eighth Down Friday/Down Monday (DF/DM) of the year (3). This occurrence followed DJIA weekly declines in four of the last five weeks and 8 of the last 12 weeks. As noted on page 78 of the 2023 Almanac, DF/DM’s have tended to occur at or near market inflection points, often significant trend reversals. Currently, clear signs of a reversal are still absent.

 

S&P 500 (4) and NASDAQ (5) have suffered even greater losses than DJIA since the start of August and both have been down in 8 of the last 12 weeks. For now, this represents the seasonal weakness we have been concerned about since June.

 

Market breadth over the last four weeks has been negative with Weekly Decliners outnumbering Weekly Advancers in all four weeks (6). During the week ending October 6, negative breadth was likely due to broad declines on October 3. Last week’s 2278 Weekly Decliners were the greatest since March 10, which was just before the market found support and resumed rallying.

 

Weekly New Highs appear to have bottomed out in early October and have been rising since (7). Weekly New Lows also appear to have reached a peak in early October (7). Any acceleration in these trends would be welcome as it would suggest that the worst of the pullback/correction is most likely over. 

 

Based upon the 90-day Treasury rate (8), it would appear most expect the Fed to be done raising interest rates. It may be too early to call the bottom in bond price (low price, higher yield), sentiment does appear to be improving with at least one brave analyst raising their exposure to bonds, especially longer-dated ones. Also of note is the 30-year Treasury bond yield reaching 5.00% last week. This is its highest yield since July 2007.

 

 

It is not too late to meet Jeff, live and in-person at the MoneyShow/TradersEXPO Orlando October 29-31 and the 2023 New Orleans Investment Conference November 1-4. Octoberphobia has struck again, but October has historically been a good month to buy. Our Tactical Seasonal MACD Buy signal has triggered. Join Jeff to discuss current events and the market’s moves.

 

 

November maintains its status among the top performing months as fourth-quarter cash inflows from institutions drive November to lead the best consecutive three-month span November-January. However, the month has taken hits during bear markets and November 2000, down –22.9% (undecided election and a nascent bear), was NASDAQ’s second worst month on record—only October 1987 was worse.

 

November begins the “Best Six Months” for the DJIA and S&P 500, and the “Best Eight Months” for NASDAQ. Small caps come into favor during November, but don’t really take off until the last two weeks of the year. November is the number-two DJIA and NASDAQ (since 1971) month. November is best for S&P 500 (since 1950), Russell 1000 (since 1979), and Russell 2000 (since 1979). Average performance in all year ranges from 1.7% from DJIA and S&P 500 to a solid 2.3% by Russell 2000.

 

In pre-election years, November’s performance is noticeably weaker. DJIA has advanced in 10 of the last 18 pre-election years since 1950 with an average gain of 0.5%. S&P 500 has been up in 11 of the past 18 pre-election years, also gaining on average a rather paltry 0.5%. Small-caps and techs perform better with Russell 2000 climbing in 7 of the past 11 pre-election years, averaging 1.4%. NASDAQ has been up in 8 of the last 13 pre-election year Novembers with an average 1.2% gain. Contributing to pre-election year November’s weaker performance are sizable declines in 1987, 1991 and 2007.

 

 

 

Options expiration often coincides with the week before Thanksgiving. DJIA posted ten straight gains 1993-2002 and has been up 19 of the last 30 weeks before Thanksgiving but has been down the last six. The Monday of expiration week has been streaky, but the net result since 1994 is 17 DJIA gains in 29 years with 12 advances occurring in the last 19 years. Options expiration day has a bullish bias, up 15 of the last 21, but four of the declines have come in the last seven years. The week after expiration has been a mixed bag recently. DJIA has been up six of the last ten after being down five of six from 2006 to 2011.

 

 

Being a bullish month, November has seven bullish days based upon S&P 500, with four occurring in the first five trading days of the month. Although historically a bullish month, November does have weak points. NASDAQ and Russell 2000 exhibit the greatest strength at the beginning and end of November. Russell 2000 is notably bearish on the 12th trading day of the month; the small-cap benchmark has risen just ten times in the last 39 years (since 1984). The Russell 2000’s average decline is 0.39% on the day. Recent weakness around Thanksgiving has shifted DJIA and S&P 500 strength to mirror that of NASDAQ and Russell 2000 with the majority of bullish days at the beginning and end of the month. The best way to trade Thanksgiving is to go long into weakness the week before the holiday and exit into strength just before or after.

 

 

 

[Editor’s note: In preparation for shipping member copies of the 2024 Almanac, we ask that everyone take a moment and ensure that their shipping address is up to date. This is especially important for anyone outside the United States. You can find this information in the “My Account” section of https://www.stocktradersalmanac.com under Profile. If you have forgotten or lost your password, it can be reset on the login page. We currently expect the 2024 Almanac to begin shipping out to you in the next two weeks.]

 

Since issuing our Seasonal MACD Buy Signal earlier this week after the market’s close on Monday, October 9, the war between Israel and Hamas has not spilled over into an even greater, multi-front conflict. Numerous questions remain and geopolitical uncertainty has been dialed back up to lofty levels. Yet, despite all the geopolitical issues, the market still appears primarily fixated on interest rates, mainly the 10-year Treasury yield. Earlier in the week when the market was rallying higher, the 10-year Treasury yield was falling while a jump higher today appears to be the key catalyst for today’s market retreat.

 

A warmer than expected CPI reading for September likely also played a role in the rise of 10-year yield today. But much of the increase was due to housing and it has a well-documented history of lagging whereas more real-time housing metrics have slowed much more than CPI would suggest. And still others, which we agree with, pointed out that today’s CPI was likely not enough to sway the Fed in either direction. Checking the CME Group’s FedWatch Tool confirms only a modest increase in the probability of another rate hike by the Fed. 

 

As we noted earlier this week in the Seasonal MACD Buy Signal email, headwinds remain numerous for the market to overcome, and volatility is likely to persist in the near-term with some backfill of recent gains a possibility. Thus far today appears to be just that, some backfill. Our bullish outlook for Q4 remains intact, but patience is still prudent. Our Seasonal Buy has triggered, but that does not mean the market is going to immediately rocket higher every day. It means that the Q3 pullback/correction has most likely run its course and the market is likely to begin a new trend higher. Weakness can be considered an opportunity to accumulate new long positions for the “Best Months.”

 

 

For those that might be interested, we have looked at the S&P 500 performance on this date often associated with superstition. Since 1930, the S&P 500 has traded a grand total of 157 Friday 13th across all twelve months. The overall track record is 87 up days and 70 down days with a slightly bullish average gain of 0.05% on all Friday 13ths. The worst Friday 13th loss was 6.12% in October 1989. This day is often referred to as “Black Friday.” The best Friday 13th gain was 9.29% in March 2020. Digging deeper into the data reveals that October Friday 13th has been up 6 times, down 7 times with an average loss of 0.58%. Based solely upon average performance, October has been the worst month for Friday 13th. But the last four, October Friday 13th have been positive. 

 

 

 

Per Monday’s Seasonal MACD Buy email, SPDR DJIA (DIA), SPDR S&P 500 (SPY), Invesco QQQ (QQQ), and iShares Russell 2000 (IWM) have been added to the portfolio using their respective average price on October 10. Prior to today’s retreat, all four positions had fractional gains. DIA, SPY, QQQ, and IWM can all still be considered on dips below their buy limits.

 

iShares Short Treasury Bond (SHV) and iShares 0-3 Month Treasury Bond (SGOV) were also closed out of the portfolio on October 10. Performance in the table does not include any trading fees or dividends. During their time in the portfolio, SHV and SGOV paid a dividend six times. In total, SHV paid $2.71 per share while SGOV paid $2.53 per share. This does work out to be an annual rate just above 5%. By no means a homerun, but much better than the essentially 0% earned prior to the Fed raising rates.

 

Other partial positions in bond ETFs iShares 20+ Year Treasury Bond (TLT), iShares Core US Aggregate Bond (AGG) and Vanguard Total Bond Market (BND) remain on Hold. Please note we have added stop losses for TLT, AGG, and BND. As witnessed earlier this week, a few consecutive days of gains would make exiting these positions easier.

 

 

 

In accordance with our Seasonal MACD Buy email new long positions in, XBI, XLV, IYW, IYT, IYZ, SOXX, XLY, XLP, XLF, XLI, XLB, XLK, VNQ, and IBB have been added to the portfolio using average prices on October 10. Short trades in IYT, XLI, and SOXX were covered/closed on Friday October 6. All positions in the Sector Rotation ETF portfolio can be considered on dips below the buy limits.

 

Please note the suggested buy limits, stop losses, and auto-sell prices have been updated based upon the price the ETF was added to the portfolio.

 

 

 

Over the last four weeks since the last update through yesterday’s close (October 11), S&P 500 declined 2.0% while Russell 2000 retreated 3.7%. Over the same period the entire portfolio slipped 0.1% lower, excluding dividends, any interest on cash and any trading fees. Large-cap portfolio positions declined the most, off 3.0% on average. Small caps slipped 2.2%, but Mid-caps advanced 5.7%. The sizable cash balance in the portfolio mitigated some of the volatility in September. We anticipate putting this cash back to work in new stock trade ideas as soon as next week.

 

Highlights from the portfolio include Super Micro Computer (SMCI) and UnitedHealth (UNH). SMCI charged back above $300 per share earlier this week bringing its total gain to 188.5% after accounting for the sale of half the original position when it first doubled from its original entry price. While UNH climbed back above $500 per share and is inching back to its breakeven price.

 

At the other end of the spectrum, Quanta Services (PWR) and Amdocs (DOX) have been stopped out. PWR was closed out last week while DOX closed below its stop loss today and will be closed out of the portfolio on October 13. For tracking purposes, DOX will appear closed out in the next portfolio update. 

 

All existing positions in the portfolio are on Hold. We anticipate putting existing capital to work in a new basket of stocks later this month. As we note on the October 2023 Strategy calendar and on page 101 of the 2023 Almanac, “late October is time to buy depressed stocks especially techs and small caps.”

 

 

 

Faster moving MACD “Buy” indicators applied to DJIA, S&P 500 and NASDAQ are all positive as of today’s close. With all three indices confirming, we are issuing our Seasonal MACD Buy Signal.

 

 

Throughout the “Worst Months,” we have maintained a cautious/defensive outlook and approach. New long trade ideas were substantially limited while short-term bond ETFs and cash were the preferred holdings. Our seasonal-based research throughout the year indicated Q3 weakness followed by a market turn sometime in late-Q3 or early Q4. This rebound appears to be getting underway despite the apparent increase in uncertainty.

 

War and conflict in the Mideast are, sadly, all too familiar and Hamas’ invasion of Israel over the weekend only adds uncertainty to an already murky geopolitical outlook. The immediate market impacts have been a rebound in crude, renewed interest in gold and silver, and based upon bond ETF trading today, a modest flight to safety and a corresponding retreat in longer-term bond yields. However, the increased uncertainty also appears to be reducing the odds that the Fed will hike interest rates even further later this year. 

 

Make no mistake headwinds remain numerous, and volatility is likely to persist in the near-term with some back fill of recent gains a possibility. But the market is forward-looking, and the Q3 pullback has likely run its course. Seasonal factors have been well-aligned throughout the year. Though never a certainty, we will stick with the system and begin establishing new long positions in the ETF portfolios.

 

 

Buy SPDR DJIA (DIA), SPDR S&P 500 (SPY), Invesco QQQ (QQQ), and iShares Russell 2000 (IWM) in the Almanac Investor Tactical Seasonal Switching Strategy Portfolio. These positions will be equally weighted in the portfolio. Buy limits for DIA, SPY, QQQ and IWM are initially today’s closing price plus 1% (closing price times 1.01 = buy limit). For tracking purposes, these ETFs will be added to the portfolio using their respective average prices on Tuesday, October 10. This price will be calculated by summing the high and low prices and dividing by two.

 

Continue to hold “Worst Months” partial positions in iShares 20+ Year Treasury Bond (TLT), iShares Core US Aggregate Bond (AGG) and Vanguard Total Bond Market (BND). We will be adding tight stop losses to these positions in Thursday’s scheduled email Issue.

 

Sell iShares Short Treasury Bond (SHV) and iShares 0-3 Month Treasury Bond (SGOV). For tracking purposes, they will also be closed out of the portfolio on Tuesday October 10 using their respective average daily prices.

 

 

In the Sector Rotation ETF Portfolio, if not already covered, cover short positions in IYT, XLI, and SOXX. Per last Thursday’s update, these three short positions were closed out, covered, on Friday.

 

Buy new long positions in XBI, XLV, IYW, IYT, IYZ, SOXX, XLY, XLP, XLF, XLI, XLB, XLK, VNQ, and IBB. Use a new 1% Buy Limit based upon today’s closing price for these positions as detailed above. For tracking purposes, these ETFs will be added to the portfolio using their respective average prices also on October 10.

 

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). Jeff presented updated versions of many of the seasonal pattern charts we have been tracking throughout the year and pointed out that the market selloff in August, September and into October is typical, seasonal weakness along with how it appears to be setting up nicely for our annual Seasonal MACD Buy signal. It has been a challenging “Worst Months,” but it will likely come to an end and just a little more patience is needed.

 

 

As of today’s close, our Seasonal MACD Buy Signal is still on Hold. Faster moving 8-17-9 MACD indicators applied to DJIA and S&P 500 remain negative. NASDAQ’s MACD indicator turned positive on yesterday’s close (10/4). Without confirmation across all three indexes the criteria to issue our Seasonal Buy signal has NOT been met.

 

The criteria to issue our Seasonal MACD Buy Signal is:

 

1. A new buy signal crossover using our 8-17-9 MACD indicator AND

2. The crossover must occur on or after the first trading day of October AND

3. DJIA, S&P 500 and NASDAQ MACD indicators must all agree.

 

 

Currently it would take single-day gains of 613.60 DJIA points (1.85%) and 19.38 S&P 500 points (0.46%) to turn DJIA and S&P 500 MACD indicators positive. NASDAQ’s MACD indicator would turn negative with a daily decline of 215.82 points (1.63%). Continue to hold defensive, “Worst Months” positions.

 

 

Each year while preparing the annual Almanac, we revisit and re-analyze our sector seasonalities (STA 2023 pages 92, 94 and 96) in depth to adjust for any new or developing trends. There have been some minor revisions made to our Sector Seasonality table in recent years, but for the most part, sector seasonality has been reasonably on track with many sectors producing the bulk of their annual gains during their traditionally favorable periods. Years of sector research allow us to specify whether the seasonality starts or finishes in the beginning third (B), middle third (M) or last third (E) of the month based upon the number of trading days in the month. 

 

The soon-to-be available 2024 Almanac table follows. Both long and short trade opportunities are researched and the most statistically viable appear below. Because indexes are not directly tradable, highly correlated exchange-traded funds (ETFs) are chosen to execute trades. When selecting a correlated ETF, we consider daily liquidity, length of time available, fees, and how closely it correlates to the sector index. Frequently this results in the use of numerous iShares and SPDR ETFs. Others are available and may be a better fit for your specific situation. Performance over the last 5-, 10- and 25-year time periods is included. We prefer to focus on the 25-year average performance as this period has sufficient data to be seasonally significant.

 

 

These entry and exit points will be the basis for our seasonal trades over the coming year. They are guidelines, as we generally look to enter new positions before the start of the favorable period and exit before its end. Occasionally a trade is closed out well in advance of the seasonality’s end. An outsized advance may trigger a trade at the suggested auto-sell price (a price target based upon past historical performance of the specific seasonality plus an additional percentage) or should strength fail to materialize, a stop loss could be reached.

 

There are thirteen sector seasonalities that enter their favorable periods in October. The following trade ideas are made based upon these seasonalities. Currently, all buy limits (the suggested maximum to pay for a share) are below current market levels as the market appears to be searching for support as long-term Treasury yields continue to trend higher. When our Seasonal MACD Buy signal triggers, we will evaluate adding open trade ideas at that time. We will remain patient.

 

 

Transports enter their historically favorable season at the beginning of October, and it runs until May. iShares DJ Transports (IYT) is attractive below current levels with a buy limit of $224.34. The suggested stop loss is $200.22 and auto sell is $288.43. Top 5 holdings are: Union Pacific, United Parcel Service, Uber, CSX, and FedEx. Consumers are facing headwinds, but betting against them has not been a good strategy over any lengthy time period. This sector delivers for the consumer. Prior to going long, the short position in IYT will be covered (see below in Updates).

 

 

Over the last 25 years, Telecom has generated an average return of 7.3% during its bullish seasonality from the middle of October through around yearend. The top ETF within this sector is iShares DJ US Telecom (IYZ). Use a buy limit of $20.51 and stop loss of $18.31. If above average gains materialize, take profits at the auto sell of $24.21. Top 5 holdings are: Cisco Systems, Comcast, Verizon, AT&T, and T-Mobile. Aggressive competition, sluggish growth and rising interest rates have hindered the sector, but rates are likely near their peak and new tech is arriving in time for the holiday shopping season.

 

 

Semiconductors come into favor near October’s end and remain so until the beginning of December. This trade has averaged 15.0% and 17.3% gains over the last 25- and 5-year periods, respectively. iShares Semiconductor (SOXX) is the top selection. Establish new positions with a buy limit of $448.13 and utilize a stop loss of $399.96. Take profits at the auto-sell of $566.88. Top 5 holdings are: Advanced Micro Devices, Broadcom, Nvidia, Intel, and Texas Instruments. These are the companies that design and supply the brains for the bulk of our favorite apps and electronic devices; smart watches, smart phones, PCs, tablets, cameras, drones, refrigerators, air conditioners basically you name it. The sector has consolidated from the AI-fueled summer rally. Prior to going long, the short position in SOXX will be covered (see below in Updates).

 

 

Although consumer spending is spilt into two distinct sectors, Discretionary and Staples, their favorable seasons run concurrently from the beginning of October to the beginning of June in the following year. Over the past 25-years Discretionary has an average gain of 15.3% and Staples 8.8%. SPDR Consumer Discretionary (XLY) and SPDR Consumer Staples (XLP) are the preferred vehicles to execute these trades. XLY can be considered on dips below $154.50. An initial stop loss of $137.89 and an auto-sell at $196.02 are suggested. XLY Top 5 holdings are: Amazon.com, Tesla, McDonald’s, Home Depot, and Nike. XLP could be purchased on dips below $65.50. Our suggested stop loss is $58.46 and use an auto-sell of $78.38. XLP Top 5 holdings are: Procter & Gamble, Costco Wholesale, Pepsi, Walmart, and Mondelez.

 

 

The line between Broker/Dealer and Banking sectors is somewhat blurry with each sector averaging gains of 10.6% and 16.0% over the last 5 years, respectively. Instead of trading two smaller, somewhat less liquid ETFs, SPDR Financial (XLF) appears to be the better choice. Use a buy limit of $31.50 and a stop loss of $28.11 once a position has been entered. The auto-sell is $39.53. Its holdings cover all things financial from insurance companies to stock exchanges. Top 5 holdings are: Berkshire Hathaway, JPMorgan Chase, Visa, Mastercard, and Bank of America. As long as the jobs market remains reasonably firm, profits for these two sectors are likely to hold up while it appears much of the inverted yield curve has already been factored in.

 

 

Another area exhibiting a reasonable amount of overlap is the Healthcare and Pharmaceutical sectors, at least as far as many ETFs are concerned. Healthcare has racked up a 7.3% average return over the past five years while Pharmaceutical alone has been 10.4%. SPDR Health Care (XLV) does an excellent job of representing both sectors and comes with the bonus of also holding several well-established biotechnology companies. XLV is attractive, below current levels with a buy limit of $126.51. The stop loss is $112.91, and the auto-sell is $166.84. Top five holdings are: UnitedHealth Group, Eli Lilly, Johnson & Johnson, AbbVie, and Merck. For tracking purposes, we will add to the existing position already in the portfolio should XLV trade below its limit.

 

 

Industrials have a favorable period that runs from the end of October through the middle of May with historical returns averaging 11.6% over the last 25-year period. Buy SPDR Industrials (XLI) with a buy limit of $98.29. Once purchased, set a stop loss of $87.72 and an auto-sell of $120.69. Top 5 holdings are: Caterpillar, Union Pacific, Honeywell, General Electric, and United Parcel Service. Prior to going long, the short position in XLI will be covered (see below in Updates).

 

 

Materials have a favorable period that runs from the beginning of October through the beginning of May with historical returns of 15.7% over the last 25-year period. Buy SPDR Materials (XLB) with a buy limit of $75.94. Once purchased, set a stop loss of $67.78 and an auto-sell of $96.68. Top 5 holdings are: Linde, Air Products & Chemicals, Sherman-Williams, Freeport-McMoRan and Ecolab.

 

 

Computer Tech comes into favor in early October and remains so until the beginning of January. This trade has averaged 14.7% and 9.7% gains over the last 25- and 5-year periods, respectively. SPDR Technology (XLK) is the top selection. Enter this trade with a buy limit of $160.05 and employ a stop loss of $142.84. Take profits at the auto sell of $201.97. Top 5 holdings are: Apple, Microsoft, NVIDIA, Broadcom, and Adobe. Apple and Microsoft combined account for 46.37% of total assets as of the October 4 close.

 

 

Real Estate has seen returns of 10.2% over the last 25 years from the end of October to the beginning of May. Vanguard REIT (VNQ) is our choice. Use a buy limit of $72.62 and a stop loss of $64.81 once a position has been entered. The auto-sell is $87.99. Top 5 holdings are: Vanguard Real Estate II Index fund, Prologis, American Tower, Equinix, and Public Storage.

 

 

 

Surging 10-year Treasury bond yield continued to weigh on the market through September and into early October. Broad weakness was a positive for our short positions in iShares Transportation (IYT), SPDR Industrials (XLI) and iShares Semiconductors (SOXX) but not for biotech related positions. Gains on the short positions range from 5.3% from SOXX to 8.8% for IYT. In anticipation of our upcoming Seasonal MACD Buy signal, we are going to cover the short positions in IYT, XLI, and SOXX. For tracking purposes, these short trades will be closed out using average daily price on Friday, October 6.

 

As a result of higher rates, SPDR Consumer Staples (XLP) was stopped on October 2 when it closed below $68.42. Excluding dividends and any fees, XLP was sold for a modest 2.3% gain. As detailed above, we will be looking to get back into XLP at a lower price or when our Seasonal MACD Buy signal triggers.

 

iShares Biotech (IBB) also stopped out earlier this week on October 3. As of today, this looks like a perfect example of an annoying whipsaw as IBB has already rebounded back above its stop loss price. The tiny bit of silver lining is excluding dividends and fees, there was no loss on IBB. We will look to add IBB back to the portfolio on dips below $118.92 or when our Seasonal MACD Buy signal arrives. SPDR S&P Biotech (XBI) can also be considered on dips below $70.00.

 

 

 

In preparation for the start of the “Best Months” and our Seasonal MACD Buy, Invesco QQQ (QQQ), iShares Russell 2000 (IWM), SPDR DJIA (DIA) and SPDR S&P 500 (SPY) have been added to the portfolio table. These are our preferred ETFs to trade our Seasonal Switching Strategy. Alternate ETFs and mutual funds are also perfectly acceptable. Page 38 of the 2023 Almanac goes into greater detail.

 

Partial positions in bond ETFs, TLT, AGG and BND are on hold. Their poor performance this year was not unexpected as the Fed has remained hawkish with inflation stubbornly remaining above its stated 2% target. Our preference for most of this year’s “Worst Months” has been short-term bond ETFs SHV and SGOV and/or cash. SHV and SGOV are on Hold.