Although he's not calling for a huge market correction, Jeffrey Hirsch of the Stock and Commodity Trader's Almanacs thinks we may have a summer pullback.
Nancy Zambell: Thanks for joining me. My guest today is Jeffrey Hirsch, the chief market strategist of the Magnet AE Fund, as well as the editor in chief of Stock and Commodity Trader's Almanac. Thank you so much, and welcome.
Jeffrey Hirsch: Great to be with you again, Nancy. How are you?
Nancy Zambell: I'm good, thanks. I don't know about this market. When I saw you last month in Las Vegas, we talked about what was going on with the market and sell in May and go away. May turned out to be a fairly good month, but as you say, that doesn't mean you should sell the first day of May, right?
Jeffrey Hirsch: No, I mean that's what people get all worked up about. It's a recognition of a longstanding seasonal pattern driven by the cultural and subtle behaviors of the marketplace and people, that the market does most of its work and makes most of its gains from November to April.
And for the most part, May through October is flat to down, and usually a dangerous period. So for everyone to latch on to this rhyme of sell in May and go away—it gets a bit grating at times, but the fact is that the consistent pattern still exists. Nobody ever said they would sell May 1...
As John Person is quoted in the Commodity Trader's Almanac, at this point...for the long side, so far, the high for the market was made in May. There's still plenty of time for that to change, but the last week looks kind of red and some volatility came back in. The market has been selling off and technical indications are turning toward the negative.
Nancy Zambell: Do you think we're going to have a major correction, or is your crystal ball saying this is sort of a bump and we'll just continue the volatility for the rest of this summer?
Jeffrey Hirsch: I don't think we're going to gain much ground over the next several months. I think the Bernanke put is firmly in there and will stay in there, although he and the rest of the Fed have been sort of testing the waters of tapering, and that startled the market.
I don't believe anything major is going to change in monetary policy until at the earliest the fourth quarter, and most likely not until 2014, when the handicapping is that Bernanke is not going to seek or accept another term.
He's been there, what, ten years or so now? It's a tough job, and I think he can probably make a few more dollars in the private sector. He's done yeoman's work, and I think it's a valid time for him to go on to the next part of his life.
The Fed is really run by one man. Yes, there's a committee, but it's the Bernanke Fed, and before that it was the Greenspan Fed. Somebody new is going to come in and things are going to be different.
Chairman Bernanke changed a lot of things. He made things a lot more transparent. That might go back the other way; it might not, but the likelihood that interest rates are going to pick up or the onset of easing is going to slow up much, prior to his departure, is small. And I think that's what's going to hold the market from any major correction or any major pullback.
It doesn't mean we're not going to go down 10% or so—perhaps a little more; perhaps a little less. We'll watch the trends; we'll watch the patterns, and the charts, and we'll see what the sectors are doing in our different stocks. So we're prepared. We're actually a little bit short biased right now.
Nancy Zambell: Tell me about that. I know that you have launched your new Magnet Fund. Why don't you tell us about that and what you're investing in? I know from speaking with you in Vegas that you do long and short versions, but right now you're a little heavily on the short side.
Jeffrey Hirsch: A little bit heavily biased. I don't think I'm at liberty to share the holdings right now, but I can give you a feel for it.
The new fund is called Magnet AE—the AE is for Almanac-enhanced, and Magnet is my partner Jordan Kimmel's stock selection process, which is an acronym for managing momentum, acceleration, growth, new emerging, and timing.
It's a robust model that uses 19 different selection criteria—17 of them fundamental, focused on the acceleration of growth and revenue earnings, margins, cash flows at good valuations with price and volume momentum. The inverse of that is on the short side.
The Almanac-enhanced part of it is looking for opportunities using the Magnet system. And the areas we like right now are a few sectors that we're looking at long and short that come out of the Almanac.
On the long side—you know bonds tend to go inverse of stocks, and if we're in a May to October worst six months period, that's going to deliver some at least sideways—if not down—equity action. So there are opportunities in bonds.
Utilities and biotech come up in the bullish seasonality. Biotech tends to start in the summer as they get into the conference and product release season in the fall. And utilities benefit from the heavy air conditioning use in the Northern Hemisphere in the summer. We're looking for some additional longs.
Materials and cyclical tend to roll over and have a more bearish seasonal bias over the next several months. We're looking for some other shorting opportunities, in addition to the ones that either rise to the top of our Magnet scoring model or to the bottom for the short side.
We put a bunch of positions with alerts and triggers out there, and the shorts started coming in a little bit—a little heavier—so those were executed in a slightly larger quantity. But we're looking pretty good. We're not fully invested yet; we're easing in, and it's an exciting time for us.
Nancy Zambell: It is exciting. Congratulations on the launch. Now, can you share any of those recommendations with our readers?
Jeffrey Hirsch: I'm going to have to check with capital before I start revealing.
Nancy Zambell: Alright, we'll check on that later on. Your fund is private, correct?
Jeffrey Hirsch: Yes, correct.
Nancy Zambell: And what is your minimum investment, Jeff?
Jeffrey Hirsch: It's a limited partnership—two and 20, and up to a $250,000 minimum. But as we're in the initial phase, we are able to offer people some discounted rates and reduced minimums for those that are able to come in early on in our embryonic stage.
Nancy Zambell: Now on your blog—is it available to anyone that goes to your Web site?
Jeffrey Hirsch: Yes, it's actually pretty easy. You can just pop in your e-mail address there and it'll come into your inbox every day after the close of the markets, or you can go there anytime.
Nancy Zambell: You talk mostly about what's going on with the market and the economy in the blog, is that correct?
Jeffrey Hirsch: We also talk about a lot of stocks. Recently, we did a bunch of case studies with the Magnet stocks that we had talked about. Jordan did an article in Forbes, it was kind of an interview like we're doing, and he picked a few stocks. This was before we launched, so we have to be careful about what we're saying now.
There are a bunch of case studies of five stocks, and they did really well. The blog is linked off of StockTradersAlmanac.com. We talk about ETFs and specific recommendations. We'll follow up-lag a few days with some of the signals that we give to the actual paying subscribers.
It's not just macro broad things. Sometimes we'll wax poetic about Fed QE Kool-Aid or the esoteric chart patterns. And sometimes we'll talk about tickers and a couple of stocks that look good. There are a lot of stocks and different ETFs and different actionable trading ideas on the blog as well.
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