Yale & Jeff Hirsch
About the Editor Jeff is editor in chief of the Almanac Investor newsletter Stock Trader's Almanac, StockTradersAlmanac.com, and the Hirsch Organization. He makes frequent appearances on CNBC, CC, Fox, and Bloomberg. Yale Hirsch is founder of the Stock Trader’s Almanac.
On Monday we informed subscribers that DJIA needed to advance 95.28 points (0.72%) and the S&P 500 needed to climb 17.83 points (1.3%) in order to reverse the MACD sell signal that had been present on the charts of our slower moving MACD indicator since March 22 for DJIA and March 28 for S&P 500. However, the DJIA needed only 61.51 points for the faster moving MACD indicator to issue a new buy signal. A last half-hour sell-off resulted in the DJIA coming up short Monday, but the DJIA needed to decline 22.5 points Tuesday in order for the buy signal to be staved off and a 10 point advance would have negated the sell signal on the slower moving MACD. We made the case for maintaining long positions in the Almanac Investor ETF Portfolio for at least a few more trading days. April was the first month to gain 1000 DJIA points in 1999 and the first four trading days have a historically bullish bias over the past 21 years. And although the market was showing signs of toppy behavior, the technical outlook had remained bullish at best and neutral at worst. Positive readings from Stochastic and Relative Strength indicators, typical first-half April seasonal strength and this pending MACD buy signal were sufficient reason to continue holding long positions related to the Best Six Months switching strategy on Monday’s close. In the event that strength proved false and fleeting we recommended raising the stop losses on all seasonal recommendations held in the Almanac Investor ETF Portfolio. A 2% trailing stop loss, based on Monday’s closing prices was applied. Although technology and small cap strength typically lasts until the end of the NASDAQ’s Best Eight Months in June, it was applied to those positions as well. Technology and small caps were the leadership in the rally since the October 3 closing low and could falter first. The release of the minutes from the last Fed meeting Tuesday afternoon had a significant impact on the market which underscored to us the market’s addiction to Fed liquidity. Discussion of no additional Fed easing measures, chiefly additional quantitative easing, sent the market into a tailspin mid-afternoon with a modest recovery near close. As a result, the technical picture from Monday deteriorated. DJIA failed to generate the MACD buy signal Tuesday that we were looking for. Both of the seasonal MACD Sell indicators for DJIA and S&P 500 were negative. On Tuesday we issued our official MACD Seasonal Sell signal for DJIA and S&P 500. We recommended to Sell SPDR DJIA (DIA), SPDR S&P 500 (SPY). Maintain the 2% trailing stop loss on the remaining seasonality based positions and to Buy half positions in iShares Barclays 7-10 Year Treasury (IEF), iShares Barclays 20+ Year Treasury (TLT) and AdvisorShares Active Bear (HDGE) using Tuesday’s closing price for the buy limit. A full position in these recommendations can be purchased when a second confirming MACD sell cross-over occurs or as market conditions warrant.
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