SET Monthly Issue December 2013
December 2013
SANTA CLAUS RALLY
Happy Holidays!
It’s the time of year for last minute Christmas shopping, celebrating with family and friends, and setting goals for 2014.
It’s also a great time of year for the stock market…
The Santa Claus rally is about to begin. This period from around December 21st to January 7th is historically one of the best stretches for stocks.
And there’s reason to believe there’s more upside for stocks in 2014. Over the last few months, there has been a divergence between earnings guidance and economic activity.
In short, earnings guidance has been coming down as expectations for economic growth are improving.
It’s unusual because companies typically make more money and raise earnings guidance when economic activity improves.
In fact, global economic growth is expected to accelerate from 2.5% in 2013 to 3.3% in 2014.
If economic growth continues to run ahead of expectations, it could set the stage for upside earnings surprises in the first quarter of 2014 and beyond.
That’s a bullish outlook for stocks in 2014.
The last two years have been a time of change in the solar industry. The solar market was crushed under the weight of massive oversupply and excess capacity from Chinese solar companies in 2012.
There simply wasn’t enough demand for all of the solar panels being produced. It caused a massive drop in the price of solar panels and quickly led to the demise of several US and European solar manufacturers.
But there’s a silver lining…
Macro/Economic Trend: Growth and Balance
The pain of 2012 turned out to be a boon for solar stocks in 2013. Production and demand have come back into balance. And the stronger players that survived the downturn have seen their stocks come soaring back.
In fact, the lower prices for solar forced companies to innovate and reduce their costs in order to survive. The result is solar power is now much more competitive with traditional sources of energy.
What’s more, the lower cost of solar systems, along with easier financing options, has created a boom in US residential installations. And global installations are forecast to grow 18% in 2014 to more than 40 gigawatts (GW).
In other words, the solar industry grew production too fast. There’s been a dramatic correction. And now the stage is set for another period of strong growth.
The ETF I like to profit from the coming boom in solar is the Guggenheim Solar ETF(TAN).
Fundamentals: A closer look at TAN
TAN currently holds 31 stocks. These stocks are selected based on their exposure to the solar industry. In order to be included, the company must generate at least one third of their revenue from solar related businesses. And those that generate at least two thirds of their revenue are given a larger weighting.
The expense ratio is 0.70%.
The top five holdings and percentage weight for TAN are –
| Company Name | Ticker | % Weight |
| First Solar | FSLR | 7.34% |
| Canadian Solar | CSIQ | 7.16% |
| SolarCity | SCTY | 6.16% |
| SunEdison | SUNE | 6.15% |
| Hanergy Solar Group | 0566.HK | 6.10% |
Technicals: The charts lead the way
TAN is currently trading for $34.90. As you can see in the chart below, TAN had a dramatic selloff in 2011 and 2012. It reversed course in late 2012 and staged a strong come back in 2013.
Here’s the thing…
TAN is still well below its all time highs. That means there’s plenty of room for solar stocks to run. What’s more, TAN has undergone a 16% correction off the November high. It’s now at support of the uptrend and positioned to move higher again.
This is a bullish technical setup that should drive TAN higher in the weeks ahead.
Trade Alert
Buy: Guggenheim Solar ETF (TAN) up to $40.00
Recent Price: $34.90
Price Target: $60.00
Stop Loss: $25.00
Remember: The solar industry is in the midst of a major growth spurt. But there could be some volatility in stock prices after a big run over the last year. However, the strong fundamentals and bullish technical outlook give TAN tremendous upside in 2014.
Consumer Discretionary (+0.7%)
The holiday shopping season got off to a slow start in November. Sales at US retailers climbed 0.7% and are up 4.7% over the last year. However, there are some concerns holiday sales are being driven by discounting and sales that could hurt the bottom line. Nevertheless, the consumer discretionary sector turned in one of the best performances over the last month.
Our iShares US Home Construction ETF (ITB) is trending higher since the end of September. And homebuilder confidence rose to its highest level in four months. Grab your shares of ITB up to $23.00.
PowerShares Dynamic Media Portfolio (PBS) media stocks are continuing to ride a wave of bullish optimism. And the outlook for advertising revenue in 2014 is strong. Continue holding…
PowerShares Dynamic Leisure & Entertainment Portfolio (PEJ) has seen its price gains slow after Thanksgiving weekend sales came in weaker than expected. But with signs of improvement in the labor market and lower prices at the gas pump, consumers should have more money to spend on leisure and entertainment.
Consumer Staples (-2.2%)
Consumer staples took a step back after breaking out to a new high last month. The good news is the sector is in a good position for a strong start to 2014. The First Trust Consumer Staples AlphaDEX Fund (FXG) has held steady at around $35.00. Grab your shares up to $36.00.
Energy (-1.3%)
Energy stocks have lagged behind the S&P 500 throughout 2013. The sector has been depressed sluggish revenue and earnings growth. But the outlook for 2014 and beyond is much more positive.
The increased production of oil and natural gas in North America will continue to benefit MLPs like the ones our Morgan Stanley Cushing MLP Hi Income ETN (MLPY) holds.
Another area that has been strong in 2013 is alternative energy like wind and solar.
Our First Trust Global Wind Energy ETF (FAN) is consolidating after an 18% surge to the upside in September and October. But there’s still more gains to come… continue holding.
And we’re recommending the Guggenheim Solar ETF (TAN) this month… see Trade Alert for more details.
Financials (+0.7%)
Financials are holding up well despite the blow the Volker Rule dealt to large banks. The new law will limit the ability of banks to hedge and invest for their own gains. However, the rule is likely much ado about nothing… for better or worse, banks will find a way around these rules.
The good news is our First Trust NASDAQ ABA Community Bank Index Fund(QABA) is made up of small banks that shouldn’t be impacted at all by the Volker Rule… continue holding.
Healthcare (-0.3%)
Healthcare stocks have taken a step back after reaching a new high at the end of November. Our Health Care Select Sector SPDR (XLV) is currently up 11.5% and in a strong uptrend. In fact, the recent pullback has helped alleviate the overbought condition in XLV. This should set the stage for the next leg higher… continue holding.
Industrials (+0.3%)
Industrials were up for the sixth month in row… and are now up more than 15% since June. A recent report from the Fed shows industrial production increased 1.1% in November. The increase pushed industrial production above the pre-recession peak of December 2007 and it is 21% above the trough of June 2009. And rail traffic continues to show strong gains as well.
iShares Transportation ETF (IYT) hit a high of $130.78 before pulling back over the last few weeks. The important thing is the strong uptrend is still firmly in place and the fundamentals are improving. Continue holding…
Technology (+1.1%)
The technology sector’s 1.1% gain over the last month was the best performance of any sector over the last month. The sector is getting a boost from a revival in Apple’s (AAPL) stock that has shot up 23% over the last quarter.
Another area of strength within technology has been semiconductors. Our iShares PHLX Semiconductor ETF (SOXX) hit our $70.00 price target on December 6th.Congratulations to everyone that locked in their 21.4% gain on SOXX!
Guggenheim S&P 500 Equal Weight ETF (RYT) regained some of the relative strength versus the market cap weighted technology funds over the last month. Continue holding for bigger gains.
Materials (-1.1%)
Materials stocks drifted 1.1% lower over the last month. The sector is suffering from weak growth in emerging markets and overcapacity. But an uptick in global economic growth in 2014 could spur the sector higher.
Utilities (-4.1%)
Utilities are benefitting from the cold snap that boosted demand for heating. But the increase in demand didn’t trickle down to the stock price. The utilities sector’s 4.1% drop was the worst performance among all sectors last month. This heavily regulated industry doesn’t have much hope for growth and rising interest rates hurt demand among income investors.
- This month we’re buying TAN.
- Sold SOXX at $70.00 price target for 21.4% gain on 12/6/13.
Category: SET Monthly Issues
