SET Portfolio Update May 2009

May 5, 2009

The markets continue to march higher.

Both the Dow and S&P 500 are back up to their late January/February highs.  And the best performing broad based index, the NASDAQ, has broken out to fresh year-to-date highs and reached its 200-day moving average.

Will this be the resistance point that finally turns back the rally?  I don’t think so.

Right now markets are recovering from a severely oversold state.

Don’t forget, there was a depression priced into stocks in March.  It was as dark as a moonless night.  All we could see were worsening conditions.  Mass bank failures were almost a sure thing.  The housing market was diving.  And the consumer had all but disappeared.

Fear gripped the markets.

Now, it’s evident our fears were unjustified.  We’ve started to see some rays of hope. They were sporadic at first.  Now the light at the end of the tunnel is becoming clearer everyday.  We’re seeing consumer confidence tick higher, new and existing home sales pick up, and orders coming in faster than expected.

And earnings season is adding fuel to the fire.

Financials started it off.  Can you believe some of the banks actually made money in the quarter?  The same banks that everyone was sure were going to fail are making money… hunh?  How did investors miss the mark so badly with this one?  Fear.

And it didn’t stop with the financials.  Well run companies across the board came in with positive earnings surprises.

So investors are adjusting their views.  Out with thoughts of a depression.  Now the focus is on recovery just around the corner… and the market continues to play catch up.

I think we have plenty of room to run.  The S&P 500 has only retraced about 24% of its total loss from the October 2007 high.  So where does this rally finally run out of steam?

On a technical basis, the first thing I look at is the Fibonacci retracements.  The next retracement level is 38.2%.  That’s another 14% higher, taking the S&P 500 above the 1000 level.

Of course, technical analysis will only take us so far.  If the economic indicators start falling off or, God forbid, another bomb goes off on the banks’ balance sheets… we could be right back where we started.

But with the information at hand, I see the rally marching on.

Now on to the updates…

Position Updates

.…. PowerShares Dynamic Building & Construction Portfolio (PKB) – Buy up to $10.75

Wow… what a start!  PKB jumped out of the starting blocks.  Up over 15% before it pulled back to our buy up to price of $10.75.  If you have the opportunity to pick some up under $10.75, go ahead and buy, but don’t chase it past the buy price.  The news out of the construction and homebuilding industry continues to be positive.  We’ll continue to monitor the ETF and consider moving up our price target as conditions warrant.

…. iShares S&P N. American Tech – Multimedia Networking Index Fund (IGN) – Hold

We’ve got another winner right out of the gate.  Congratulations to everyone who bought IGN before it moved beyond our buy up to price.  With a nice gain of 13% so far, we expect more good things to come.  IGN continues to show strength relative to the rest of the tech industry and should lead technology higher.  Hold tight, we’ll let you know when we are approaching our price target.

…. SPDR S&P Biotech (XBI) – Buy up to $51.50

XBI can’t break above key resistance points.  I’m discouraged that XBI has been repelled by the 50-day moving average twice.  The price action has put this ETF in a short term downtrend.

The shift from defensive sectors like healthcare, to offensive ones, has left biotech without enough buyers to get this industry moving.  However, the macro-economic trends and fundamentals of the industry remain strong.  As money continues to come off the sidelines, it could be the boost this ETF needs to move in the right direction.

…. Market Vectors Gold Miners (GDX) – Buy up to $35.50

Gold formed a double bottom at its 200-day moving average back on April 19th… indicating a strong floor of support just below its current price.

I think the gold miners are in a good position.  The price of gold has found a stabilizing point and is starting to move higher.  And, the miners ability to produce a hard asset that holds value during times of inflation could prove to be invaluable.  The Fed and the Treasury continue to print money at breakneck speed.  If there’s even a hint of inflation, we should see this ETF move higher.

Action To Take

•  IGN has changed from a “Buy” to a “Hold” due to the price moving beyond our buy up to price.

Category: SET Portfolio Updates