We're Closing Out a Position Amid Weakening China Manufacturing Activity

Symbol	Transaction Type	# Shares Traded	Recent Price $	Shares Owned After Trade	% Portfolio
XLE	Sell	1,345	90.50	0	0

After you receive this Alert, we will sell the remaining 1,345 shares of the Energy Select Sector SPDR Fund XLE at or near $90.50. This will close out the portfolio’s position, which returned ~ 10%.

While many of us were enjoying the Labor Day long weekend, China released its NBS Manufacturing and Non-Manufacturing PMI data for August. In Friday’s Pro Portfolio Monthly Roundup, we siad we would be watching factors for oil demand, and that data showed China’s manufacturing sector not only slipping further into contraction with a reading of 49.1 but contracting for the fourth consecutive month.

The continued drop in new orders (48.9 vs 49.3 in July), foreign sales (48.7 vs 48.5), and buying levels (47.8 vs 48.8) do not suggest we are on the cusp of a rebound in China’s manufacturing activity. The Non-Manufacturing economy accelerated modestly compared to July but because China is the largest importer of oil, we are more focused on the slowing manufacturing sector following reports that OPEC+ is expected to proceed with a planned production hike in October.

At the same time, this morning’s HCOB Manufacturing PMI for the eurozone tells us manufacturing activity in that bloc remains weak and likely to remain so. What tells us that is the reported accelerated drop in new order activity to its lowest levels so far this year with “manufacturers reduced input purchasing, employment, and inventories.” This is not good for China's export demand, and is another indication China's manufacturing is likely to remain weak.

One of our mantras is to “follow the data” and in this case, it’s flashing a warning of the high probability of weaker oil prices ahead. While we have yet to get today’s U.S. August Manufacturing PMI data from ISM and S&P Global, based on July new order data, the expectation isn’t for a pronounced rebound in that activity.

We have a nice double-digit gain in XLE shares ahead of those reports, and because of the high probability of weaker oil prices ahead, we are moving to preserve that gain. The proceeds from this move will bolster our cash position, giving us more firepower to pick up more shares of quality companies with superior EPS prospects at favorable entry points.

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(Please note that we are looking to execute these trades at or near the share price mentioned above. Once the trade is completed, subscribers can see the trade's executed price here. Be sure to click on Closed Trade Gain/Loss and toggle the chart to sort by Purchase Date.)

At the time of publication, TheStreet Pro Portfolio was long XLE.