November 2017 Trading & Investment Strategy By: | October 26, 2017 | Email | Print

10/26/2017: Dow 23329.46 | S&P 2557.15 | NASDAQ 6563.89 | Russell 2K 1493.48 | NYSE 12336.58 | Value Line Arith 5801.40

 

Psychological: Frothy. Good news is good news; bad news doesn’t matter as the biggest fear appears to be the fear of missing out. This fear has sent Investors Intelligence Advisors Sentiment survey bulls to 62.3%, bears down to 15.1% and correction camp has shrunk to just 22.6%. The percentage of bulls is in the danger zone and so is the spread between bulls and bears. This historical bull market likely has further to go, but an interim top could be forming.

 

Fundamental: Stalled. Growth in Q3 will likely be in the 2-3% range when the first report is released tomorrow morning. Anything less and hurricanes will take the blame, anything more would be a surprise. Employment, or the headline unemployed number, has likely bottomed. Any further improvement will likely come from an expansion of the workforce. Corporate earnings have been solid. Tax reform, done fairly and correctly, could give the economy a long-term advantage, but specific details still remain unknown.

 

Technical: Toppy. Stochastic, relative strength and MACD indicators applied to S&P 500, NASDAQ and Russell 2000 have rolled over and turned negative. DJIA is the remaining holdout and could succumb at any time. Advance/Decline lines have also rolled over. A mild pullback along the lines of what transpired from mid-July to mid-August is not out of the question.

 

Monetary: 1.00-1.25%. Next week on Halloween the Fed will meet again. No tricks or treats are currently anticipated. CME Group’s FedWatch Tool is showing nearly no chance of any change in rates. The biggest question that remains is who will be the next Fed Chair. It may not really matter in the short-term as rates are still historically low and monetary policy remains highly accommodative in the U.S. and globally. Plenty of liquidity is available to fund stock buy backs and dividend increases.

 

Seasonal: Bullish. November begins the “Best Six Months” for the DJIA and S&P 500, and the “Best Eight Months” for NASDAQ. November also marks the beginning of the best consecutive three-month span November-January. Post-election year Novembers are solid ranking near the top across the board. Our Seasonal MACD Buy signal can trigger anytime now. An email Alert will be sent after the close when it does trigger.

 

With three days left in the historically scary month of October for markets it looks like we will sidestep October’s penchant for volatility and sharp negative market surprises. On top of the banner “Worst Six Months” that are about to come to a close this continuing upside momentum bodes well for the next “Best Six Months” and 2018 until something shocks the system. 

 

This market is so robust at the moment that it will likely take some systemic market event. Perhaps it will be triggered by a run in the mushrooming ETF arena, Federal Reserve tightening, a new major international conflict, a breakdown in the US or other major economy, or something on the geopolitical front. 2018 is a midterm year and it is already getting hot in DC. 

 

Midterm mudsling will ramp up early next year and if the Trump Administration and Congress have failed to deliver, an impatient electorate could dethrone GOP control of Congress, upsetting Wall Street. Additionally, any disruptive legislation that changes the playing field could cause market participants to readjust and rock financial markets.

 

But for now all is well. Last month we showed you how Great Worst Six Months are usually followed by above average Best Six Months, full-year gains, as well as strong following years. Well, this current WSM has advanced even further into “Great” territory. Last month the S&P 500 was up 5.3% for the WSM so far. As of today’s close S&P is up 7.4% for the current WSM. 

 

In the chart below we added year-to-date performance for perspective. By almost all accounts this year’s combination of a Great WSM and YTD gains will likely beget further gains. The only blemishes on this chart are 1968-69, 1981-82, and 1989-90. 

 

 

Vietnam and the bear market that lasted from December 1968 to May 1970 put the squeeze on stocks in 1968 and 1969. Reagan’s recession and a bear market in the wake of reigning in high interests, inflation and dysfunctional government battered markets in 1981 and 1982. The markets responded negatively in 1990 when the first President Bush reneged on his 1988 campaign promise not to raise taxes and Gulf War I consumed the psyche of the planet.

 

But the news is good for now and we remain optimistic for further gains through yearend and into early next. When we get our Best Six Months Seasonal MACD Buy Signal we will shift our bias more bullish. MACD and other indicators have or are on the brink of rolling over to sell signals. So we are not entirely out of woods yet and we are still vulnerable to some Octoberphobia and a pullback of some degree before the WSM, or year, is over. 

 

After that, expect the next BSM to be stronger than average after a great WSM. Then we look for a continuation of the rally into and through yearend. But starting in Q1-Q2 next year we begin to get concerned with the extended valuations and length of this bull market and the bearish tendencies of midterm election years, and what promises to be overarching monetary policy and geopolitical risk.

 

 

After a brief pause near the end of September, DJIA has been steadily climbing higher. DJIA closed above 23,000 for the first time last week (1) on October 18. DJIA has been propelled higher by growing hopes and expectations that tax reform will happen sooner rather than later. Earnings have also been widely positive adding further support.

 

As the calendar turned to October and the window to issue our Seasonal MACD Buy signal opened, DJIA’s MACD “Buy” indicator turned positive (2), however S&P 500 and NASDAQ MACD indicators were already positive in September. As a result, the criteria to issue our Seasonal MACD Buy signal was not meet.

 

 

During DJIA’s recent run it has had two Down Friday/Down Monday (DF/DM) warnings (3). Historically a DF/DM occurrence was nearly always followed by a decline sometime during the next 90 calendar days. Thus far, both of the most recent occurrences (and even the one in July) have been nonevents. Considering the longer-term, heavily lopsided data associated with past DF/DM’s, the last two warnings should not be overlooked.

 

DJIA (4) and S&P 500 (5) were up six weeks straight and eight of the last nine weeks. NASDAQ (6) has been up four straight and seven of the last nine weeks. These winning streaks will come to an end, but that does not mean the end of the rally.

 

One potential sign that the rally is beginning to run out of steam can be found in NYSE Weekly Advancers and Decliners (7). The total number of advancers has been slipping while the number of decliners is climbing. This would indicate a shrinking number of stocks are involved in the rally. Further signs of a fizzling rally can be seen in the number of NYSE Weekly New Highs and New Lows (8). New Highs appear to have peaked during the first week of October while New Lows bottomed that week. New Highs have been falling while New Lows have been climbing.

 

As of last Friday, the 30-Year Treasury rate (9) is unchanged over the last 20 weeks and was still lower than it was at the start of the year. Perhaps the multi-decade bull market in bonds is ending, but that ending is still quite difficult to see in the weekly data.

 

 

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-three DJIA and number-two S&P 500 month since 1950. Since 1971, November ranks second for NASDAQ. November is number-one for Russell 1000 and Russell 2000 second best since 1979.

 

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. 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.

 

In post-election years, November’s market prowess is relatively unchanged. DJIA has advanced in 13 of the last 16 post-election years since 1953 with an average gain of 1.8%. DJIA has been up 10-straight post-election year Novembers. S&P 500 has been up in 12 of the past 16 post-election years. Small caps perform well with Russell 2000 climbing in 7 of the past 9 post-election years, averaging 2.8%. The only real blemishes in the November post-election year record are 1969 (DJIA –5.1%) and 1973 (DJIA –14.0%, OPEC oil embargo).

 

 

 

Options expiration often coincides with the week before Thanksgiving and does so this year. DJIA posted ten straight gains 1993-2002 and has been up 19 of the last 24. The Monday of expiration week has been streaky, but the net result since 1994 is 19 DJIA gains in 24 years. Options expiration day has a clearly bullish bias, up 12 of the last 15. The week after expiration has been improving lately, up four of the last five after being down five of six from 2006 to 2011.

 

Being a bullish month November has six bullish days, though it 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, when the small-cap benchmark has risen just six times in the last 33 years (since 1984). The Russell 2000’s average decline is 0.47% 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.

 

As of today’s close, our Seasonal MACD Buy Signal is still on Hold. Our 8-17-9 MACD “Buy” indicator applied to S&P 500 and NASDAQ turned positive on September 29. DJIA’s MACD “Buy” indicator turned positive on October 2. S&P 500 and NASDAQ MACD indicators are now negative. DJIA’s MACD indicator remains positive. 

 

The criteria to issue our Seasonal MACD Buy Signal is a new buy signal using our 8-17-9 MACD indicator on or after the first trading day of October and DJIA, S&P 500 and NASDAQ must be in agreement.

 

This criterion has not been met yet. A one-day DJIA decline of 185.46 point (-0.8%) or a few days of sideways to lower trading would turn its MACD indicator negative as well.

 

 

 

Our Stock Trader’s Almanac charter is based on time-tested, repeatable, historical trends and patterns for frequency and magnitude. While we realize that history never repeats exactly it sure does rhyme quite a bit. On this infamous 30th Anniversary of the Black Monday’s October 19, 1987 crash that drove DJIA down -22.6% in the largest one-day drop in history, let’s compare then to now…. Things were quite a bit different back then than they are today.

 

Number one, 30 years ago back in 1987 the market was up a great deal more. DJIA was up 43.6% and S&P 500 was up 39.1% when it had peaked two months earlier on August 25, 1987. NASDAQ was up 30.3% at its August peak. By the time October came around in ’87, DJIA was already down -17.5% from its peak to the Friday before Black Monday, S&P -16.1% and NASDAQ -10.7%.

 

Currently we’ve been logging new highs like it’s going out of style. But DJIA and S&P are up less than half as much as they were at the peak in August 1987. As of the close yesterday, October 18, 2017, DJIA was up +17.2% year-to-date, S&P +14.4%. NASDAQ is closer to where it was in 1987 at +23.1%. The market has barely had a pull back this year. The difference is rather evident in the chart below.

 

 

The battle for Catalonian independence from Spain rattled markets overnight and this morning on Wall Street, but the market action does not appear to be of the crash or meltdown ilk at this juncture. Back in ‘87 Black Monday, DJIA was down 8.9% at the open, up 6.5% from 9:30am to 10am, then to new intraday lows at 11am, followed by one last attempt higher up 4.1% from 11-11:30am, and then it tumbled the rest of the day. Today the market dropped a paltry 1% or so depending on the index this morning, but gained most of it back by midday.

 

Aside from it being October in a “7th year” (which does have a notorious history of October massacres), 1987 and 2017 have more differences than similarities. 1987 was a Pre-Election year and the 7th year of Reagan’s Term. 2017 is the first year of the Trump administration, and a post-Election Year. Our positive January Indicator Trifecta has provided sound bullish guidance all year. Yes we have been cautious as we always are in the “Worst Six Months,” May-October, while the market has continued to log gains, but our strategy has worked well over the long haul and in recent years, and we have remained long many winning positions in both our stock and ETF portfolios.

 

From the 1974 low to the ‘87 high DJIA was up 371.3%. Since the 2009 low DJIA is now up 253.7%. NASDAQ was up 730% then versus 422% now. 10-year Treasuries were in the 8-9% range back then in 1987 and now they’re at 2.30% and have been low for a decade.

 

In 1987 hawkish Fed Chair Volker had just stepped down. Greenspan replaced him shortly before the top in August and rates have been in steady decline since. Circuit breakers and plunge protection teams have been in place since the 1987 crash and circuit breakers have been improved over the years, most recently after the “Flash Crash” in May 2010 so far preventing any ‘87 or ‘29 like one day declines. While the 2007-2009 bear was nasty it was rather orderly.

 

However, we are not entirely out of woods yet and we are still vulnerable to some Octoberphobia (as we saw today) and a correction of some degree before the “Worst Six Months” or year is over. After that, I expect the next “Best Six Months” to be solid as they have been after decent WSM or stronger than average after a great WSM. The S&P 500 is currently up 7.4% since the close of April 2017. Right in the wheelhouse of Worst-Six-Month gains that have been more often followed by big upside moves in the BSM.

 

We look for a continuation of the rally into and through yearend. But starting in Q1-Q2 next year we will likely begin to get concerned with the extended valuations, length of this bull market, the bearish tendencies of midterm election years, and what promises to be overarching monetary policy along with Geopolitical risk. A more significant market meltdown is more likely to occur in the latter part of Q2 through Q3 2018.

 

 

Last week’s October Stock Basket of new long stock ideas now appear in the Stock Portfolio table below. Lantheus Holdings (LNTH), Builders FirstSource (BLDR) and II-VI (IIVI) traded below their respective buy limits today. During the next update, their current Value and Net % Return will appear.

 

Applied Optoelectronics (AAOI) plunged below its buy limit and stop loss on October 13 after the company pre-announced a big third-quarter earnings disappointment. Because AAOI opened below its stop loss, no position was taken. AAOI trade is cancelled.

 

 

Over the five weeks since last update, S&P 500 climbed 2.5% higher while Russell 2000 jumped 5.5% higher as of yesterday’s close. The Almanac Investor Stock Portfolio’s blend of cash, long and short positions climbed a modest 1.3% over the same time period excluding dividends and any trading costs. Our Large-Cap portfolio performed best, up 3.1% followed by Mid-Caps up 2.2%. Small-Caps were just 0.6% higher mainly due to the sizable loss recorded by Ascendia Pharma (ASND). Prior to September 22, ASND had been weakening and was below the level it was shorted at, but when news broke that a competitor’s drug had failed trials, ASND surged to $42. ASND short position was covered on September 25 using that day’s average price which was significantly above the published stop loss.

 

PDF Solutions (PDFS), the last remaining short position in the Small-Cap portfolio should be covered. PDFS has rallied off its lows, but was down 2% today. For tracking purposes, PDFS will be covered using its average trading price tomorrow.  

 

In the Large-Cap portfolio, also cover short positions in Mattel Inc (MAT) and Mosaic (MOS). MAT has a 19.8% gain and MOS 11.7%. These are respectable gains worth taking. For tracking purposes both will be covered using their average trading price tomorrow.

 

Four other short positions remain in the portfolio, FMI, MLNX, SEE and TSLA. These positions are on Hold. Should the market take a breather and pullback in the near-term, these positions may be closed out at more advantageous levels.

 

Excluding the new long stock basket trade ideas from last week, mentioned above, all other positions in the Stock Portfolio are on hold. Please see following table for current advice and updated stop losses.

 

 

 

 

In advance of the “Best Six Months” and in preparation for when we issue our Seasonal MACD Buy signal, the ETF Portfolio has been updated below. DIA, IWM, QQQ and SPY appear at the bottom of the table. Currently there are no buy limits or stop losses. These values will be updated when we issue our Seasonal MACD Buy signal.

 

From our update earlier this month, SPDR Materials (XLB) short trade has been covered. Positions in SPDR Utilities (XLU) and CurrencyShares Swiss Franc (FXF) have also been closed out. XLU was the only winning trade of this group, up 5.1% excluding dividends or trading fees.

 

Three new positions were taken in iShares DJ US Telecom (IYZ), Vanguard REIT (VNQ) and iShares NASDAQ Biotech (IBB). IBB was added earlier today and its Return will appear in the next update.

 

Positions with Buy Limits can still be considered on dips. If they are not added, we will consider adding them when we issue our Seasonal MACD Buy signal. Continue to hold TLT, AGG, GLD and SLV.

 

 

 

 

As of today’s close, our Seasonal MACD Buy Signal is still on Hold. Our 8-17-9 MACD “Buy” indicator applied to S&P 500 and NASDAQ turned positive on September 29. DJIA’s MACD “Buy” indicator turned positive on October 2. All three indicators remain positive, but are trending toward turning negative. 

 

The criteria to issue our Seasonal MACD Buy Signal is a new buy signal using our 8-17-9 MACD indicator on or after the first trading day of October and DJIA, S&P 500 and NASDAQ must be in agreement.

 

This criterion has not been met yet.

 

 

 

These 22 stocks all have reasonably solid valuations, healthy revenue and earnings growth, while exhibiting positive price and volume action as well as other constructive technical and chart pattern indications. The group of 22 covers a broad array of sectors and industries. It also runs the gamut of market capitalization with a mix of large caps with more than $5 billion in market value, midcaps in the $1-5 billion range, and small caps under $1 billion.

 

We first sifted through the universe of nearly 8,000 U.S. traded stocks for those with a market cap of at least $50 million and average daily volume of 50,000 shares or more on average over the past twenty trading sessions. Then we winnowed the list down to only those stocks with relatively low price-to-sales and price-to-earnings ratios. From there we searched for stocks that were exhibiting revenue and earnings growth.

 

We then dug into numerous individual company charts before settling on these final 22 stocks. Our underlying theme was to find reasonably priced stocks quietly growing sales and earnings that are flying somewhat under the radar with few on The Street paying close attention to them. As market cap goes higher, this becomes increasingly challenging and a history of earnings surprises becomes even more important. 

 

At the end of the screening process we found that construction, technology and financial industries were well represented in the basket. We did not search specifically for top-performing stocks within these sectors, this just happens to be where reasonable value and growth currently exist.

 

This basket is being presented in order to take advantage of the “Best Six Months” (November to April) for stocks. We will look to add these 22 stocks, in the table below, on dips. We will allocate a hypothetical $2000 from the cash position in the portfolio to each position. For each stock we have provided the ticker, name, sector, general business description, plus annual sales growth, PE, price-to-sales ratio, market value, a dividend yield and a suggested buy limit and stop loss. 

 

 

As of today’s close, our Seasonal MACD Buy Signal is still on Hold. Our 8-17-9 MACD “Buy” indicator applied to S&P 500 and NASDAQ turned positive on September 29 (blue arrows in charts of S&P 500 and NASDAQ below). DJIA’s MACD “Buy” indicator turned positive on October 2 (red arrow in DJIA chart). 

 

The criteria to issue our Seasonal MACD Buy Signal is a new buy signal using our 8-17-9 MACD indicator on or after the first trading day of October and DJIA, S&P 500 and NASDAQ must be in agreement. Because S&P 500 and NASDAQ MACD indicators turned positive on the last day of September the criteria was not satisfied.

 

 

This criterion has been in place for multiple years and was detailed as recently as last year in three separate email Alerts (10/11/2016 second paragraph, 10/13/2016 last sentence and 10/18/2016 first sentence after Seasonal MACD Buy Signal Update subhead). This is a change when compared to the earlier years of Almanac Investor. The change was the result of a thorough review of the strategy, the application and use of the MACD indicator and was prompted by the market’s action back in October of 2007.

 

MACD’s greatest benefit is the crossovers that it generates. The crossovers reflect a change in momentum, for better or worse. To maximize the benefits of MACD a new crossover is required. In an effort to reduce the chances of a false signal, we require a new crossover on all three indices, DJIA, S&P 500 and NASDAQ.

 

The current criterion maintains the original methodical, emotionless execution of our Seasonal Switching Strategy while ensuring we are getting the maximum benefits of using a MACD indicator.

 

For 51 years the new edition of the Stock Trader’s Almanac has been released early in the fourth quarter. And for the past sixteen years we have been preparing Almanac Investor readers for the annual October ETF buying spree. This year is no exception, but before delving into October’s seasonalities, let’s do a quick review for new and seasoned followers alike. 

 

Every year while preparing the annual Almanac, we revisit and analyze our sector seasonalities (STA 2018 pages 94, 96 and 98) in depth in order to make adjustments for any new or developing trends. There have been a few minor revisions made to our Sector Seasonalities table in recent years, but for the most part, sector seasonality has been reasonably on track since September 2009 with many sectors producing the bulk of their annual gains during their traditionally favorable periods. Years of sector research allows 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 2018 Almanac table follows. Keen observers and long-time readers will note the absence of several indices. Indices that no longer appear are no longer being calculated or are not readily available in the public domain. In the place of discontinued indices we have added S&P Sector indices. Both long and short trade opportunities are researched and the most statistically viable appear below. 

 

 

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 or should strength fail to materialize, a stop loss could be reached.

 

There are twelve sector seasonalities that enter their favorable periods in October. The following trade ideas are made based upon these seasonalities. Currently, all buy limits are below current market levels. Should the market struggle prior to our Seasonal MACD Buy Signal, we want to take advantage of the pullback to begin accumulating the following new positions.

 

 

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 $174.56. The stop loss is $157.10 and auto sell is $227.15. Top 5 holdings are: FedEx, Norfolk Southern, United Parcel Service, Union Pacific and Kansas City Southern. With nearly 70% of U.S GDP coming from consumers, seasonal strength in the consumer sector overlaps nicely with the transportation sector.   

 

 

Over the last 15 years, Telecom has generated an average return of 8.2%, but for the last 5 years the average has slipped to 3.6% during its bullish seasonality from the middle of October through yearend. The top ETF within this sector is iShares DJ US Telecom (IYZ). Use a buy limit of $30.85 and stop loss of $27.77. If above average gains materialize, take profits at the auto sell of $36.72. Top 5 holdings are: AT&T, Verizon, Level Communications, T-Mobile and CenturyLink. Aggressive competition has not been kind to growth, but IYZ does boast a 2.88% yield and new product offerings could bring consumers in for an upgrade for the holidays.

 

 

Semiconductors come into favor near October’s end and remain so until the beginning of December. This trade has averaged 11.1% and 8.9% gains over the last 15- and 5-year periods, respectively. iShares PHLX Semiconductor (SOXX) is the top selection. Establish new positions with a buy limit of $154.96 and utilize a stop loss of $139.46. Take profits at the auto sell of $189.38. Top 5 holdings are: Intel, Texas Instruments, NVidia, QUALCOMM and Broadcom. These are the companies that design and supply the brains for most of our favorite electronic devices; smart watches, smart phones, PCs, tablets, actions cameras, drones, toaster ovens, basically you name it.

 

 

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 15-years Discretionary has an average gain of 14.5% and Staples 9.5%. SPDR Consumer Discretionary (XLY) and SPDR Consumer Staples (XLP) are the preferred vehicles to execute these trades. XLY can be considered on dips below $89.72. An initial stop loss of $80.75 and an auto-sell at $113.00 are suggested. XLY Top 5 holdings are: Amazon.com, Home Depot, Comcast, Walt Disney and McDonald’s. XLP could be purchased on dips below $54.20. Set a stop loss at $48.78 and auto-sell of $65.28. XLP Top 5 holdings are: Procter & Gamble, Coca-Cola, Philip Morris, Altria and Walmart. XLP is an existing holding in the ETF Portfolio. If you already own, continue to hold the existing position, if you do not currently hold a new position can be considered. 

 

 

The line between Broker/Dealer and Banking sectors has become increasingly fuzzy in recent years with each sector averaging gains of 19.1% and 16.7% over the last 5 years, respectively. Instead of trading two smaller, somewhat less liquid ETFs, SPDR Financial (XLF) is the better choice. Use a buy limit of $25.30 and a stop loss of $22.77 once a position has been entered. The auto sell is $31.09. Its holdings cover all things financial from insurance companies to stock exchanges. Top 5 holdings are: Berkshire Hathaway, JPMorgan Chase, Bank of America, Wells Fargo and Citigroup. A steepening yield curve combined with a sound labor market should give this group a boost.

 

 

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 rather impressive 15.8% average return over the past five years while Pharmaceutical alone has been just 6.0%. SPDR Health Care (XLV) does an excellent job of representing both sectors and comes with the added bonus of holding several well-established biotechnology companies as well. XLV is attractive near current levels with a buy limit of $81.68. The stop loss is $73.51 and auto sell is $98.29. Top five holdings are: Johnson & Johnson, Pfizer, UnitedHealth Group, Merck and AbbVie. Obamacare appears to be here to stay in one form or another. It did little to control prices in the sector. Greater access to services and an aging population should translate into solid growth for the sector.

 

 

Materials have a favorable period that runs from the beginning of October through the beginning of May with historical returns of 17.1% over the last 15- year period. Buy SPDR Materials (XLB) with a buy limit of $56.01. Once purchased, set a stop loss of $50.41 and an auto sell of $72.15. Top 5 holdings are: Du Pont, Monsanto, Praxair, Ecolab and Air Products and Chemicals. If global growth is truly about to accelerate, eventually the materials sector will catch up.

 

 

Computer Tech comes into favor in early October and remains so until the beginning of January. This trade has averaged 11.1% and 6.1% gains over the last 15- and 5-year periods, respectively. SPDR Technology (XLK) is the top selection. Enter this trade with a buy limit of $58.61 and employ a stop loss of $52.75. Take profits at the auto sell of $71.63. Top 5 holdings are: Apple, Microsoft, Facebook, Alphabet and AT&T. Apple is the largest current holding, at 14.36% of total assets. Both share classes of Alphabet are also held and total 10.42% of total assets. Mega-cap tech continues to deliver solid growth. 

 

 

Real Estate has seen returns of 12.8% and 12.0% over the last 15 and 5 years respectively from the end of October to the beginning of May. Vanguard REIT (VNQ) is our choice. Use a buy limit of $83.02 and a stop loss of $74.72 once a position has been entered. The auto sell is $103.01. Top 5 holdings are: Simon Property, Equinix, Prologis, Public Storage and Welltower.

 

 

 

In recent weeks some of the defensive positions held in the portfolio have weakened. Bond funds TLT and AGG have slipped back toward breakeven (excluding any dividends or trading fees). Precious metals funds, GLD and SLV has also fallen as capital has been moving from safe-haven assets into riskier assets like stocks. Short positions have also gone against the portfolio during the current rally. These positions were held as part of an overall seasonal trading strategy that will from time to time underperform the broader market however, over the longer-term (years and even decades) has proven time and again to be an effective way to manage risk while steadily building wealth. We will continue to hold TLT, AGG, GLD and SLV until we issue our Seasonal MACD Buy Signal. 

 

Short positions in IYT and XLF were stopped out in late September (see table below). The materials sector short trade, XLB should be covered. Historical weakness generally comes to an end in mid-October. For tracking purposes, XLB will be closed out using its average price on October 6. 

 

SPDR Utilities (XLU) should be sold. Its favorable season also ends in October. For tracking purposes, XLU will be closed out using its average price on October 6. 

 

CurrencyShares Swiss Franc (FXF) should also be sold as its favorable season concludes in October. For tracking purposes, XLU will be closed out using its average price on October 6.

 

iShares NASDAQ Biotech (IBB) and iShares US Tech (IYW) can be considered on dips below their respective buy limits. IBB and IYW buy limit, stop loss and auto-sell prices have been adjusted to take into account recent strength and the lack of any meaningful weakness in August or September.

 

 

Disclosure Note: At press time, officers of the Hirsch Organization, or accounts they control held positions in AGG, GLD, SLV, TLT, XLP and XLV. They did not hold any positions in the other ETFs mentioned in this Alert, but may buy or sell at any time.