June is the end of the Best Eight Months of the Year for NASDAQ and the Russell 2000 small cap index, so next week we will begin tracking MACD for a sell signal in these two markets. However, just as we did when our S&P 500 and Dow Best Six Months Sell signal triggered on April 7, we will not be selling and going away. When our Best 8 Months sell signal occurs we may sell any underperforming open long positions and further tighten stops on winners, but we will not be selling everything, nor going away.
Stocks have drifted higher in general since our April 7 signal, but not by much. After rallying 8.7% from our October 15 Buy Signal the S&P 500 is up 3.8% since April 7. The Dow tacked on 7.1% from October 15 to April 7 and is up only 2.6% since. Many of our long positions were stopped out for handsome gains, while we took losses in a few. The NASDAQ rally since mid-April has pushed our PowerShares QQQ (QQQ) position above its recent March highs.
Our Worst Six Months defensive positions have performed quite well, except for the AdvisorShares Ranger Equity Bear (HDGE) ETF. HDGE is down about 3.4% since it entered the portfolio, but this is our insurance policy against any correction. The other bearish plays – stock shorts, inverse ETFs, inversely correlated longs, and bonds – have done relatively well. Starbucks (SBUX), our inversely correlated long for the bearish Coffee trade is up about 5% since it was added two weeks ago when it dipped below our $70.00 buy limit on May 15.
So as we enter the summer doldrums, we feel we are positioned prudently – not too bearish and not too extended. Bonds have been on a tear since the beginning of the year and there are signs that rates may begin to turn higher, putting pressure on iShares Core Total US Bond Market (AGG), so we’ve got our eye on that position and may tighten our stop loss.
Our buddy John Person is looking for a top in bonds in the near future. In one of her Real Money pieces today Helene Meisler – one of our favorite technicians – writes that “Bonds Look Liable to Struggle.” Both John and Helene see indications that the S&P can break a bit higher here before any pullback. So with the Fed still easy and printing dough and the tape remaining strong we are not expecting any major correction in the next month, though we are prepared for it. At this point it looks like any major correction will occur in the worst 4 months July-October.
Disclosure Note: At press time, officers of the Hirsch Organization, or accounts they control held positions in AGG, HDGE, QQQ, XLE and XLU.