April 2017 Trading & Investment Strategy
March 30, 2017
Market at a Glance - 3/30/2017
By: Christopher Mistal
March 30, 2017
3/29/2016: Dow 20659.32 | S&P 2361.13 | NASDAQ 5897.55 | Russell 2K 1371.64 | NYSE 11496.67 | Value Line Arith 5433.80
Psychological: Fading. According to the most recent Investors Intelligence Advisors Sentiment survey bulls have retreated to 49.5%, bears are at 18.1% and correction is up to 32.4%. Bulls peaked at 63.1% at the start of March so this pullback in bullish sentiment is sizable however; neither the bear nor correction counts are elevated sufficiently to signal a clear, new buying opportunity. Current levels are essentially neutral; the market could easily snap the downtrend and return toward all-time highs or just fizzle out and meager sideways.
Fundamental: Mixed. Unemployment rate dipped in February from 4.8% to 4.7% with the addition of 235,000 net new jobs, inflation is trending in the direction the Fed would like to see and the Fed saw adequate strength in the market and the economy to raise rates again. But, U.S. GDP, updated today to a revised 2.1% is not exactly exciting. A healthier pace of growth would greatly improve odds for further market gains.
Technical: Bouncing. DJIA, S&P 500 and NASDAQ all found support around their respective 50-moving averages earlier this week and have since rebounded higher. Russell 2000 has not fared as well and is struggling to reclaim its 50-day moving average. Stochastic and relative strength indicators have turned and are improving. Faster MACD Buy Indicator applied to NASDAQ and Russell 2000 turned positive today while DJIA and S&P 500 are on the verge of turning. Previous all-time highs set on March 1 could provide some resistance.
Monetary: 0.75-1.00%. April does not have a scheduled FOMC meeting and it is probably not needed anyways. At their March meeting, action was taken and the target range for Fed Funds was raised by 0.25%. Although the Fed is clearly in a tightening cycle, the pace of increases has been slow and overall rates remain highly supportive to the market and the economy.
Seasonal: Bullish. April is DJIA’s best performing month since 1950, third best for S&P and fourth best for NASDAQ (since 1971). However, April also marks the end of our “Best Six Months” for DJIA and the S&P 500. On April 3, we will begin looking for our seasonal MACD sell signal and corresponding signs of seasonal weakness and will issue an Alert when it triggers.
April Outlook: March Weakness Paves Way for Further Gains
By: Jeffrey A. Hirsch & Christopher Mistal
March 30, 2017
S&P 500 and NASDAQ edged into the black today for the month of March. The Dow and Russell 2000 are close and poised to do so tomorrow. As we expected and warned March 2017 like other post-election year Marches was weaker than March normally is. 
Normally a decent performing market month, post-election year payments to the Piper takes a toll on March as average gains are trimmed.” This likely has a lot to do with the fact that post-election March often sits smack dab in the middle of a new President’s first 100 days. 
Stocks were rolling along rather strongly during Trump’s first 100 days until the new healthcare bill ran into a wall. However, in the grand scheme of things the market seems to have shrugged it off with a fairly typical mild end-of-Q1 correction of -2.3% on the S&P 500. Now stocks appear to have found support around the indices 50-day moving averages. However, the Russell 2000 index of small cap stock has fallen behind as it normally does this time of year.
In fact, while Mr. Trump continues to run an unorthodox administration and operates much differently than any president we can remember, the market continues to rally, clearly anticipating some legislation or policy maneuvers that will prove beneficial to the economy and market. 
Or perhaps, the economy and corporate America are just finding better footing on the back of still historically low interest rates that are destined to rise only at an extremely measured pace. Unemployment continues to dwindle and inflation finally has gained some traction, but GDP remains tepid with the final Q4 rate revised 10 basis points higher today to a yawning 2.1%.
While we expect further gains in April and even potentially a few months beyond that, the market remains ripe for a more substantial correction in the 5-10% range, but we would not expect that to transpire until summertime during the latter part of our “Worst Six Months.” 
Our stock and ETF portfolios have performed quite well since last October and our Best Six Months Seasonal MACD Buy Signal proved to be timely. Even though we anticipate new all-time highs and we have a very bullish indication from our positive January Indicator Trifecta reading, we will keep in mind the potential for a post-election year correction and tighten up and lighten up and take some profits when we get our Best Six Months Seasonal MACD Sell Signal.
Pulse of the Market
March began with DJIA roaring over 300 points higher on the first trading day, but from then to now it has been a struggle. Since the first, DJIA has only recorded five daily advances and fifteen daily declines. DJIA also logged its first eight-consecutive-daily-losing streak since 2011. However, despite all of this seemingly apparent negative trading action, DJIA has remained above its 50-day moving average (1) and is still less than 500 points from its March 1 all-time closing high.
DJIA’s mediocre performance this March has turned both its faster and slower MACD indicators negative (2). Both indicators had been in a steady and consistent trend lower until recently when their trajectory lower began to level off. As of yesterday’s close, a single-day gain of 1.6% or more would turn DJIA’s MACD Buy indicator positive.
Dow Jones Industrials & MACD Chart
DJIA’s worst weekly decline (3) and S&P 500’s first daily loss in excess of 1% in 109 trading days came last week. That week was also flanked by DJIA’s third and fourth Down Friday/Down Monday (DF/DM) (4) of 2017. Single DF/DM occurrences have historically foreshadowed future weakness, but back-to-back occurrences have historically signaled a turning point in the current trend. The trend was lower then and DJIA has held support so its next move could be a run back toward all-time highs.
March weakness has dragged on throughout the entire month, but S&P 500 (5) and NASDAQ (6) have also held up with only two weekly declines each in the last four weeks. S&P 500 and NASDAQ put the full month back in the green today. DJIA would need a close above 20812.24 to be positive in March.
NYSE Weekly Advancers and Decliners (7) have been in a tug of war this month. The modest gains during the week ending March 3 were accompanied by a greater number of Decliners than Advancers which was an early sign of future weakness. A healthy market advance would be accompanied by Advancers exceeding Decliners by a solid margin on a consistent basis.
NYSE Weekly New Highs (8) peaked in February and have been choppy to lower since while Weekly New Lows have exceeded 100 for three straight weeks. This is typical behavior during periods of weakness. A steady increase in New Highs accompanied by a steady decrease in New Lows would be a sign that the rally has resumed. Even better would be an expansion of New Highs that exceeds February or even December’s high of 676.
Weekly CBOE Put/Call (9) readings have exceeded 0.70 for three weeks straight and have accompanied minor losses overall. Possibly due to the increasing popularity of weekly options, spikes seen in historical data, above 1.0 during times of elevated fear and near or below 0.40 during times of greed, seem to have disappeared. The contrary value of this indicator appears diminished as it increases modestly while the market is weak and falls while the market is rising. 
Pulse of the Market Table
April Almanac: Rarely a Challenging Month
By: Jeffrey A. Hirsch & Christopher Mistal
March 28, 2017
April’s first trading day is a busy day full of seasonal influences. As the first trading day of April and the second quarter, it has enjoyed exceptional strength over the past 22 years, advancing 17 times with an average gain of 0.52% in all 22 years for S&P 500. Declines occurred in 2001, 2002, 2005, 2013 and 2015. April’s first trading day is only second to May’s (page 86, Stock Trader’s Almanac 2017). 
April marks the end of our “Best Six Months” for DJIA and the S&P 500. On April 3rd, we will begin looking for our Seasonal MACD Sell Signal and corresponding early signs of seasonal weakness. We will use this signal to begin to take a more defensive posture in the Stock and ETF Portfolios.
April 1999 was the first month to gain 1000 DJIA points. However, from 2000 to 2005, “Tax” month was hit, declining in four of six years. Since 2006, April has been up eleven years in a row with an average gain of 2.6% to reclaim its position as the best DJIA month since 1950. April is second best for S&P and fourth best for NASDAQ (since 1971).
The first half of April used to outperform the second half, but since 1994 that has no longer been the case. The effect of mid-April Tax Deadline appears to be diminished. Traders and investors are clearly focused on first quarter earnings during April. Exceptional Q1 earnings and positive surprises tend to be anticipated with stocks and the market moving up in advance of the announcements and consolidating or correcting afterwards.
Typical post-election blues have done little to damper April’s performance since 1953. April is DJIA’s second best month in post-election years, gaining 1.9% on average. April is fourth best for S&P 500 and NASDAQ. Although post-election year 2005 did suffer a 3% DJIA decline.
[April Post-Election Year Performance Table]
Options expiration week frequently impacts the market positively in April and DJIA stocks have the best track record since 1990, with an average gain of 1.3% for the week with just six declines in 27 years. The first trading day of expiration week has a slightly better record than expiration day and the week as a whole is generally marked by respectable gains across the board. The week after has a slightly softer long term-record and in 2017, the day after Easter, which has been the S&P 500’s worst post-holiday trading session (page 88 Stock Trader’s Almanac 2017) lands in this week which could further dampen performance.
April (1950-2016)
  DJI SP500 NASDAQ Russell 1K Russell 2K
Rank 1 3 4 3 4
# Up 45 47 29 26 23
# Down 22 20 17 12 15
Average % 1.9   1.5   1.3   1.5   1.5
4-Year Presidential Election Cycle Performance by %
Post-Election 1.9   1.6   2.4   2.5   2.2
Mid-Term 0.8 0.2 -0.1 -0.1 0.7
Pre-Election 4.0 3.5 3.5 2.8 2.8
Election 0.9 0.6 -0.4 0.9 0.2
Best & Worst April by %
Best 1978 10.6 2009 9.4 2001 15.0 2009 10.0 2009 15.3
Worst 1970 -6.3 1970 -9.0 2000 -15.6 2002 -5.8 2000 -6.1
April Weeks by %
Best 4/11/75 5.7 4/20/00 5.8 4/12/01 14.0 4/20/00 5.9 4/3/09 6.3
Worst 4/14/00 -7.3 4/14/00 -10.5 4/14/00 -25.3 4/14/00 -11.2 4/14/00 -16.4
April Days by %
Best 4/5/01 4.2 4/5/01 4.4 4/5/01 8.9 4/5/01 4.6 4/9/09 5.9
Worst 4/14/00 -5.7 4/14/00 -5.8 4/14/00 -9.7 4/14/00 -6.0 4/14/00 -7.3
First Trading Day of Expiration Week: 1990-2016
#Up-#Down   17-10   15-12   14-13   14-13   11-16
Streak   D2   D2   D2   D2   D1
Avg %   0.3   0.2   0.2   0.2   -0.01
Options Expiration Day: 1990-2016
#Up-#Down   17-10   16-11   12-15   16-11   16-11
Streak   D3   D2   D2   D2   U1
Avg %   0.1   0.1   -0.2   0.1   0.1
Options Expiration Week: 1990-2016
#Up-#Down   21-6   18-9   16-11   18-9   19-8
Streak   U1   U1   U1   U1   U1
Avg %   1.3   1.1   1.1   1.1   1.0
Week After Options Expiration: 1990-2016
#Up-#Down   17-10   17-10   17-10   17-10   17-10
Streak   U2   U2   D1   U2   U2
Avg %   0.2   0.3   0.6   0.3   0.8
April 2017 Bullish Days: Data 1996-2016
  3,4,6,12,17-19 3,4,17-21,27 3-5,10,12,19 3,4,18-21,26,27 3,4,18,20,21,26
  21,26,27   21,27    
April 2017 Bearish Days: Data 1996-2016
  28 24 25 24,28 7
April 2017 Strategy Calendar
By: Christopher Mistal
March 28, 2017
Seasonal Switching Strategy Update: “Worst Months” Incoming
By: Christopher Mistal
March 23, 2017
From our Seasonal MACD Buy Signal on October 24, 2016 through yesterday’s close, DJIA gained 13.4%, S&P 500 climbed 9.2% while NASDAQ was up 9.6%. At their respective high closes on March 1, 2017, DJIA was up nearly 16% and S&P 500 and NASDAQ were up over 11%. Either at yesterday’s close or the highs, this performance is above long-term averages.
Naturally this level of gains has some concerned while others may be thinking “yesterday’s” performance will continue “tomorrow.” Our recent look at Solid Best Six Month Performance would agree with those that are concerned as past above average and even well-above average “Best Six Month” performance did not carry forward into the subsequent “Worst Six Months.” The “Worst Six Months” were still tepid with only a fractional average gain.
The long-term track record of our Seasonal Switching Strategy, which is based upon the “Best Six Months”, has a solid track record of outperformance with potentially less risk compared to a buy and hold approach. Since 1950, DJIA’s average annual gain has been 8.3%. Over the same time period, DJIA has lost an average 1.1% during the “Worst Six Months,” May through October, and gained an average 9.2% during the “Best Six Months,” November through April.
Detractors are quick to point out that there have been positive “bad” months and negative “good” months. This is absolutely true as there is no trading or investment strategy that works 100% of the time (even the best will report a trading loss every once and a while). In post-election years, the worst performing year of the four-year cycle (page 130, STA17), there have been some nasty selloffs. Most recently in 2001 when DJIA fell 17.3%, S&P 500 dropped 15.6% and NASDAQ plunged 31.1% during the worst months. Barring another “once-in-a-generation” bear market and financial crisis, the double-digit gains of 2009 are not highly likely this year. And with the Fed clearly in a tightening cycle, a repeat of 2013’s quantitative easing fueled gains are also unlikely. 
[DJIA, S&P 500 and NASDAQ Seasonal Switching Strategy during Post-Election Years]
Applying Our Seasonal Switching Strategy Recap
Because of the heightened level of risk of a pullback or correction that has been historically observed during the “Worst Six Months” of the year, May through October, and its historically tepid returns, reducing long exposure and developing a defensive strategy is the approach we take in Almanac Investor. We do not merely “sell in May and go away.” Instead we take some profits, trim or outright sell underperforming stock and ETF positions, tighten stop losses and limit new long exposure.
For those with a lower risk tolerance or a desire to take a break from trading, the “Worst Months” are a great opportunity to unwind longs and move into the relative safety of cash, Treasury bonds, gold and/or some combination of. Preservation of capital may be more important than growth and with historical averages and frequency of gains reduced; the “Worst Six Months” are a good time to simply step aside if you prefer. August, September and/or October have provided some excellent buying opportunities in recent years and could do the same again this year. 
Worst Months Defense
We are not issuing the signal at this time. We are only preparing you for when it does arrive.
Currently, the Almanac Investor Stock Portfolio and ETF Portfolio are positioned with a long-only bias for the “Best Months” with no long exposure to bonds, individual stock or sector short, or positions in bear market funds. But, beginning April 3, 2017 we will begin looking for our seasonal MACD sell signal accompanied by signs of seasonal weakness. Our recent Official Seasonal MACD Sell Signal Alerts proved rather timely as the market topped shortly thereafter.
When both the DJIA and S&P 500 MACD Sell indicators trigger a sell signal, we will issue an Almanac Investor Alert. We will either outright sell specific positions or implement tight trailing stop losses. Bearish/defensive positions in: iShares 7-10 Year Treasury (IEF), iShares 20+ Year Treasury (TLT), SPDR Gold (GLD), ProShares Short Dow 30 (DOG), ProShares Short S&P 500 (SH) and/or other protective strategies may also be considered. All stock and ETF holdings will be evaluated at that time. ETFs providing exposure to sector seasonalities ending in April and May along with underperforming stocks in the Almanac Investor Stock Portfolio may be sold at that time as well.
For traders and investors employing the “Best 6 + 4-Year Cycle” as detailed on page 62 of the Stock Trader’s Almanac 2017, this year’s upcoming Seasonal MACD Sell signal should be heeded as the multi-year hold period is coming to an end.
Mid-Month Update: Foundation in Place for Next Leg Higher
By: Christopher Mistal
March 16, 2017
A mid-March blizzard in the Northeast may be atypical weather for this time of the year based upon historical weather data, but the market’s performance thus far in March has been much more typical. The month began with well above average gains on its first trading day following some welcome comments in President Trump’s first address to Congress the prior evening. Weakness followed on the second trading day and the market was moving largely sideways to lower until yesterday (11th trading day). Even that jump higher is visible in the 21-year March Market Performance charts below
[DJIA, S&P 500 and Russell 1000 March Seasonal Pattern Chart]
[NASDAQ and Russell 2000 March Seasonal Pattern Chart]
Compared to DJIA, S&P 500 and Russell 1000, NASDAQ and Russell 2000 are generally slightly softer in March. This has certainly been the case with Russell 2000 this year. Even after yesterday’s solid advance, Russell 2000 is still down so far this March. Modest weakness today, the day after a Fed meeting is not uncommon, but bullishness on and after St. Patrick’s Day, along with Triple Witching Friday is likely to put the market back on typical March Performance track higher. But, the last four trading days of March can see modest declines due to end-of-month/quarter portfolio restructuring and profit taking.
However, the market could regain momentum and blast right through typical end-of-quarter weakness. The recent retreat from all-time highs and sideways to lower trading action has caused bullish sentiment to ease. According to the most recent Investors Intelligence Advisors Sentiment survey bulls have retreated from a high of 63.1% at the end of February to 53.4% while the correction camp has swelled to 29.1%. The only slight concern is the limited number of bears at just 17.5%. This easing in bullish sentiment does suggest that the rally could resume.
Technically, recent action has also worked off many of the near or outright overbought technical indicators. Stochastic, relative strength and MACD indicators applied to DJIA, S&P 500 and NASDAQ are all positioned in neutral territory while Russell 2000’s indicators were near over sold levels. In addition, major support levels for the indices all held during recent weakness. This suggests that the market could be positioned for another leg higher.
A move higher is largely supported by economic data as well. Full-year corporate earnings for the S&P 500 are estimated to rise by 10.5%. February’s jobs report was better than expected with 235,000 net new jobs added and the unemployment rate ticked down to 4.7%. Headline CPI data has inflation trending higher and year-over-year figures have been above 2% for three months in a row. The last time year-over-year CPI was above 2% was back in spring of 2014%. Economic growth, measured by GDP, is forecast to be tepid in Q1 at just 0.9% according to the Atlanta Fed’s GDPNow model, but Q1 has not been the strongest quarter for growth in recent years. Recent poor Q1 economic weakness could be due to winter weather or a post-holiday reversal.
Even though the Fed did raise its benchmark rate to 0.75 to 1.0% at its meeting yesterday, interest rates are still highly accommodative within historical context. And there was little in yesterday’s statement to suggest that the Fed will accelerate rate increases anytime in the immediate future. And even if they did hasten the pace of increases it would not necessarily be a substantial impact on major multi-national corporations that could still borrow overseas where rates are even lower. Borrowing to fund buy backs and dividends would still continue which is supportive of higher market levels.
And let’s not forget the campaign promises of the Trump Administration. Lower taxes, less regulation, healthcare overhaul, infrastructure and defense spending being the largest and potentially most influential to markets. Very ambitious goals indeed that might take longer than expected to achieve in any form, but they will most likely remain the main focus of the new Administration. Fully changing the course of a $4 trillion-plus a year bureaucracy is not going to happen in a 100 Days and it may not happen in the first year, but the idea will be there to support the market.
So as we head toward April, the last month of the “Best Six Months,” we will continue to diligently hold long positions and prepare for the upcoming “Worst Six Months” as it appears the rally still has room to run.
Proving Grounds: Solid Best Six Month Performance Does Little to Improve Worst Months
By: Christopher Mistal
March 13, 2017
From the Stock Trader’s Almanac, it is known that the “Best Six Months” (BSM) for DJIA and S&P 500 are November through April. These are the months where DJIA and S&P 500 log the majority of their gains, time and time again. Since October 1949, DJIA has racked up a BSM gain 53 times in 67 years with an average advance of 7.5%. S&P 500 has nearly an identical record with one fewer win a modestly lower average gain of 7.1%. 53 gains in 67 periods works out to a 79.1% success rate, a solid DJIA result.
DJIA and S&P 500 are shaping up to be well above average this time around. As of yesterday’s close, DJIA was up 15.1% and S&P 500 was up 11.6% for the current BSM. Most of this strength has been attributed to the prospects of tax cuts, healthcare reform, reduced regulation, infrastructure and defense spending the Trump Administration campaigned on. A rebound in fourth quarter corporate earnings also played a part in the rally, that part has likely been understated. 
Somewhat naturally, the recent surge in stock markets to new all-time highs has many on edge as valuations appear stretched. In an effort to better gauge the prospects of the rally continuing through the “Worst Six Months” (WSM), May through October, after such an above average performance thus far, we examined two different scenarios for both DJIA and S&P 500. 
Although the WSM period is rightfully named, it is not always negative. Instead, there are generally less frequent gains and of lower magnitude. Looking back over the past 67 years, DJIA has advanced 40 times in the WSM and S&P 500 has 42 advances. However, average gains are significantly lower at 0.4% and 1.4% respectively.
[DJIA Above Average Best Months Table]
[S&P 500 Above Average Best Months Table]
In the above two tables, all above average BSM periods for DJIA and S&P 500 appear with the subsequent WSM lined up in the right side of the table. Any BSW that was greater than 7.5% for DJIA and 7.1% for S&P 500 are included. This resulted in 33 occurrences for each. For DJIA, the subsequent WSM period in this scenario differed little when compared to all 67 years. Its average gain at 0.42% is unchanged and the frequency of losses was also little changed (42.4% compared to 40.3% in all 67 years). S&P 500 however, did see a modest improvement during the WSM. Its average climbed to 3.30% and frequency of declines fell from 37.3% to 27.3%. Overall, an above average BSM period did not have a meaningful impact on WSM performance.
[DJIA Best Months Exceeding 15% Table]
[S&P 500 Best Months Exceeding 11% Table]
In these two tables only past up BSM periods that exceeded DJIA’s and S&P 500’s current BSM gains were examined. In this scenario the subsequent WSM period was also essentially unchanged. The frequency of losses for DJIA was virtually unchanged while average performance crept up to 0.92%. However, S&P 500 frequency of losses increased to 36.0% and its average gain retreated to 2.28%. 
Overall, the results of these comparisons show that above average BSM gains or even well-above average BSM gains historically have not lead to a similar boost in performance during the WSM in any way that could be considered consistent and reliable. The upcoming WSM period is likely not to differ much from the past with meager if any gain and a heightened possibility of a pullback or correction.
Stock Portfolio Updates: Small-Cap Advantage Fading
By: Jeffrey Hirsch & Christopher Mistal
March 09, 2017
When the treacherous Ides of March and the festive remembrance of the patron saint of Ireland, Saint Patrick, approaches, the seasonal small cap rally often comes to a close. As illustrated on page 110 of the Stock Trader’s Almanac 2017 the Russell 2000 Index of small cap stocks begins to fade versus its large-cap counterpart in mid-March. The recent pullback in the market has many folks calling a top on an exhausted, overvalued market. Relax, the market is most likely consolidating its massive move from November and working off its rather overbought condition.
Trump’s first 100 days are about halfway over and things are heating up in DC. This ramped up political activity and the usually soft end of Q1 may push the market a bit lower before another leg up commences. We may end up getting a deeper correction after the next leg up in the Worst Six Months. But for now though the S&P 500 (along with the DJIA and NASDAQ) is holding pretty solidly above support – the Russell 2000 and the small caps less so. 
In the chart below of the S&P you can see the breakdown from the overbought condition in the stochastic, relative strength and MACD indicators in the lower three panes. In the top pane the S&P has some serious support around 2280 – that’s about a 5% correction from the high. 2280 is at the upper end of the big December-January consolidation just after the December breakout. And it’s right on last month’s blue-dotted line pivot point and just below the current green dotted line pivot point support and the pink line 50-day MA. The next level of support is near 2200 just before the December breakout.
[S&P 500 Daily Bar Chart]
The Russell 2000 on the other hand is right at support of about 1355. This coincides with the December-January consolidation, the November high and its current green dotted line pivot point support. Lower support near 1305 aligns with the upper end of the initial November rally after the election, the early December low and January’s green dotted line pivot point support.
[Russell 2000 Daily Bar Chart]
Portfolio Updates
In the nearly four weeks since last update, S&P 500 was 1.5% higher while Russell 2000 was down 1.9% as of yesterday’s close. The Almanac Investor Stock Portfolio’s blend of cash and long positions resulted in a 1.5% overall gain over the same time period. Our Large-Cap portfolio produced the most gain at 3.1%. Small-Caps were second best, gaining 1.7% while Mid-Caps rose just 0.1%.
Almanac Investor Small-Caps beat the broader Russell 2000 primarily because of a 75% gain by micro-cap stock Pressure Biosciences (PBIO). Due to recent gains, PBIO is on Hold. As a reminder, we will be observing standard trading guidelines and will sell half the original position should PBIO double in price. Global Brass and Copper Holdings (BRSS) and Century Communities (CCS) also contributed to gains in the Small-Cap portfolio. BRSS and CCS both recently traded at new all-time highs.
Tuesday’s new trade ideas aimed at capitalizing from falling cocoa prices, The Hersey Company (HSY) and Rocky Mountain Chocolate Factory (RMCF) have both been added to the portfolio. HSY was added at $108 while RMCF was added using its average price on March 8 of $11.18. Both positions have a slight gain. HSY could still be considered on dips below $108 and RMCF can still be considered at current levels up to a buy limit of $11.50. Cocoa is still in a downtrend with little to no signs of an end.
UnitedHealth Group (UNH) and Arista Networks (ANET) charged higher lifting the Large-Cap portion of the portfolio. After flirting with doubling in price for what seemed like months, UNH finally traded above $164.08 on February 15 and half the original position was sold on that day. ANET reported fourth quarter earnings in mid-February that blew away expectations and offered guidance that was also better than expected. UNH and ANET are both on Hold.
All other positions, not mentioned above, 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.
[Almanac Investor Stock Portfolio – March 8, 2017 Closes]
Disclosure Note: At press time, officers of the Hirsch Organization, or accounts they control held positions in ANET, BUSE, CCS, IESC, MHO and SBRA.
Seasonal Sector Trades: Bitter Sweet Cocoa & Another Pound Bounce
By: Christopher Mistal & Jeffrey A. Hirsch
March 07, 2017
Cocoa tends to begin a seasonal decline in early to mid-March through the end of May (shaded in yellow below), instituting a short position in our seasonal best-trade category. Selling on or about March 13, right before St. Patrick’s Day and holding until on or about April 16, for an average holding period of 23 trading days, has been a winner in 33 of the past 44 years. Even in the face of the 2008 great commodity bull-run, this seasonal trade worked with a potential profit of $1,730 per contract. Since 1997, this trade has only posted three losses. 
[March Short Cocoa (July) Trade History]
[Cocoa (CC) Weekly Bars (Pit Plus Electronic) and 1-Yr Seasonal Pattern]
Cocoa has two main crop seasons. The main crop from the Ivory Coast and Ghana in Africa accounts for approximately 70% of the world production and runs from January through March. As inventories are placed on the market, this has a tendency to depress prices, especially when demand starts to fall for hot chocolate drinks and chocolate candy in the spring and summer time. Cocoa’s clear trend over the last year has been lower and nearly in a straight line since last August. Sizeable deficits in the 2015-16 harvest that drove prices higher are expected to be filled with sizable surpluses in the current 2016-17 season. 
Futures traders could consider an outright short position or bearish option strategy using the July contract to take advantage of this setup. Stock and ETF traders could try to short iPath Pure Beta Cocoa ETN (CHOC) or iPath Bloomberg Cocoa ETN (NIB) however; they are not all that liquid. CHOC traded just over four thousand shares, on average, over the past three months and NIB was around 83,000. 
Another possibility, with plenty of liquidity is The Hershey Company (HSY). When cocoa prices rise, Hershey’s price tends to decline and the opposite often holds true as well. HSY is also a familiar household name for many. HSY, like much of the broad market, has somewhat stretched valuations. Its trailing P/E ratio (price/earnings) is around 32 and P/S (price/sales) is around 2.2. However, HSY appears to be throwing in the towel on some less profitable global operations and plans to trim costs through workforce cuts. A potentially leaner, more focused company could translate in higher profits and possibly an even larger dividend (currently yields 2.28%). HSY could be considered on dips below $108. If purchased a stop loss of $102 is suggested. HSY will be tracked in the Almanac Investor Large-Cap Portfolio.
[Hershey Foods (HSY) Daily Bar Chart]
However, even more interesting is Rocky Mountain Chocolate Factory (RMCF). With a market cap around $65 million, this is definitely a small-cap company. They are headquartered in Durango, Colorado and operate as a confectionery franchisor, manufacturer and retail operator. RMCF’s valuation is reasonable with a P/E of 13 and a price-to-sales ratio right around 1.7. Cash on hand and debt are also reasonable. They also pay a respectable dividend (4.27% yield). 
[Rocky Mountain Chocolate Factory (RMCF) Daily Bar Chart]
After surging in mid-January due to impressive earnings, RMCF has retreated and has been consolidating those gains. Recent trading action has turned stochastic, relative strength and MACD indicators modestly positive and the 50- and 200-day moving averages were not violated on a closing basis. RMCF could be considered at current levels with a buy limit of $11.50. If purchased, a stop loss of $9.70 is suggested. This trade will be tracked in the Almanac Investor Small-Cap Portfolio. Falling input costs, reasonably valuation and solid growth prospects make RMCF attractive.
British Pound Seasonal Rebound
The British pound has a distinct pattern of doing the opposite of the Euro and Swiss Franc. It has a strong tendency to move up against the U.S. dollar from mid-March through the latter part of April (shaded in yellow below). In fact, in the 41-year history of this futures-based trade, it has been positive 29 times for a success rate of 70.7%.
[March Long British Pound (June) Trade History]
Entering on or about March 21, holding a long position for 22 trading days and exiting on or about April 23 has been even more successful in recent years, collecting 14 wins in 17 years since 2000. Perhaps the fact that Britain’s fiscal year begins in April helps to push the pound’s value up against the U.S. dollar, as money moves back overseas. Cross transactions between the pound versus the euro currency and the pound versus the yen may help influence the rise in the pound’s value relative to the U.S. dollar as well.
[British Pound (BP) Weekly Bars (Pit Plus Electronic) and 1-Yr Seasonal Pattern]
Outside of the Forex markets, CurrencyShares British Pound (FXB) is the top choice to execute a trade as its holdings consist entirely of British pounds. Net assets are a touch over $286 million equivalent U.S., but average daily trading volume could be better than the current 70,000 over the past 30 days. Renewed Brexit concerns have FXB trading right around its lifetime lows once again. Great Britain and the pound have been around a long time and survived far worse. The current selloff seems overdone. FXB could be considered on dips below $119.00. If purchased a stop loss at $117.00 is suggested. This trade will be tracked in the Almanac Investor ETF Portfolio.
[CurrencyShares British pound (FXB) Daily Bar Chart]
ETF Trades: Ride the Rally & Tend Stop Losses
By: Christopher Mistal
March 02, 2017
Although the market took a breather today giving back a portion of yesterday’s surge, it is not all that likely to manifest into anything more than a brief bout. In addition to our positive January Trifecta signaling further gains are quite likely, the history of S&P 500 gains in January and February offers further support for continued strength.
In 87 years going back to 1930, S&P 500 has been positive in January and February 33 times. Strength continued into March in 22 of those years and the full year was up 29 times. The record further improves when examining the data since 1950. This is the earliest year we consider to represent the beginning of the modern era. Since 1950, S&P 500 has advanced 19 out of 26 times in March following gains in January and February and was positive for the full year 25 out of 26. Average March gains in all 26 years were 1.4% while the full-year averaged 19.5%.
[Up Jan & Feb S&P 500 Performance Table]
April Sector Seasonality
Usually at this time we would be considering new long ideas from the Computer Technology sector as seasonal strength typically begins in April and runs until July. Historically, the Computer Technology sector has averaged 6.2%, 5.9%, and 7.2% over the last 15-, 10- and 5-year time periods respectively. Back in January we elected to hold Computer Tech related positions in the portfolio instead of selling as the table on page 94 of the Stock Trader’s Almanac 2017 suggests. That decision proved correct as iShares US Technology (IYW) and SPDR Technology (XLK) continued to rally along with the broader market. Because sufficient exposure to the Computer Tech sector already exists in the portfolio, with respectable gains, we will not officially expand any Computer Tech related positions.
ETF Portfolio Updates
Core ETF Portfolio positions utilized to trade the “Best Six/Eight Months,” SPDR DJIA (DIA), iShares Russell 2000 (IWM), PowerShares QQQ (QQQ) and SPDR S&P 500 (SPY) are up an average 13.4% as of yesterday’s close. DIA is now the top performing ETF of this group, up 16.2%. Due to recent gains, stop losses for these positions have all been raised. DIA, IWM, QQQ and SPY are on Hold
SPDR Utilities (XLU) still has not traded below its buy limit. XLU currently has a dividend yield exceeding 3% and seasonal strength typically lasts until the beginning of October. XLU can be considered on dips below $50.20
Per last update, First Trust Natural Gas (FCG) was closed out of the portfolio using its average price on February 22 of $25.56 resulting in a 4.5% loss. FCG is about $1 lower at this writing, so the decision to cut and run appears to have been the correct one.
Precious metal short trades from early February have both been executed. DB Gold Double Short (DZZ) was added to the portfolio on February 23 at $5.80. DZZ and ProShares UltraShort Silver (ZSL) were both negative at yesterday’s close, but will likely be in the green at today’s close as gold is down over 1% and silver is currently down over 3%. The seasonalities associated with these two holdings are relatively brief in duration so we will look to take profits at their respective Auto-Sell prices.
All other positions not previously mentioned are on Hold. Please see table below for updated stop losses.
[Almanac Investor ETF Portfolio – March 1, 2017 Closes]
Disclosure Note: At press time, officers of the Hirsch Organization, or accounts they control held positions in IWM, IYT, QQQ, SPY, VNQ, XLB, XLP, XLV and XLY.