SET Monthly Issue June 2015
Enough Is Enough
A month ago, the S&P 500 was breaking out of a multi-month consolidation pattern to reach new all-time highs.
But the volatility in fixed income, currencies, Greek debt, and uncertainty about the timing of the first interest rate hike in the US put a lid on the gains for stocks.
As you can see, the breakout was short lived. In fact, the large cap index is down 2% over the last month.
At this point, US stocks are being held hostage by the uncertain conclusion of Greek debt and the timing of the imminent US interest rate hike.
There are ways for active institutional investors to profit from the current gyrations in the global financial markets. But for most of us, this current period of choppy directionless trading is difficult to generate profits in.
As a result, we’re seeing many individual investors head for the sidelines as the macro economic conditions are sorted out. Shockingly, only 20% of individual investors are bullish on stocks over the next six months according to the AAII Investor Sentiment Survey.
I firmly believe there’s still more upside for US stocks. But in order for that to happen, monetary policy around the globe needs to normalize. And along with it, inflation rates, economic growth, and interest rates will normalize as well.
The latest economic data suggest that the US economy is picking up steam after a sluggish first quarter.
I believe the current fear and uncertainty are creating an opportunity for us to buy ETFs at a great price. As the macroeconomic headwinds subside and investors feel more confident, this ETF should find itself flying high.
Trade Alert: Airline Stocks Ready To Throttle Up
Airlines and other aviation stocks don’t have a great track record with investors. The industry has seen many failures and bankruptcies over the years.
But those days are ancient history…
Today’s aviation industry is a model of efficiency and profitability.
Airlines have streamlined operations and have strict fuel efficiency standards that have done wonders for their balance sheets. It has helped fuel some big gains in airline valuations.
And there’s more to come…
Macro/Economic Trend: Follow The Profits
After years of consolidations and often times painful restructuring, the airline industry is stronger than ever.
A combination of fewer airlines, more seats on planes, and add-ons such as checked baggage, priority boarding, Wi-Fi, on-board meals, and extra leg room have sent free cash flow soaring to all-time highs.
And the airline industry won’t stop finding few ways to add fees. One airline industry group is taking steps to shrink the size of carry on luggage. The proposed maximum size is 21.5 inches tall by 13.5 inches wide by 7.5 inches deep.
That’s smaller than the current carry-on for airlines like American, Delta United, and Southwest. These smaller carry-on items would certainly push more travels to opt for checking bags and paying the fee for the service.
These additional fees are annoying for travelers that were used to getting many of these things for free. But there’s no doubt about it, airlines have become masters of squeezing money out of their customers at every turn.
Luckily for investors, airlines are also mastering how to put this money to work. They’re striking a balance between investing in their future and rewarding shareholders.
We’re seeing many airlines upgrade to more fuel efficient planes. This helps set the stage for long-term profitable growth no matter what happens to fuel prices.
At the same time, airlines are increasing share buybacks and dividend payments.
Here’s the best part… investors have been selling off airline stocks as oil prices have rebounded over the last few months. But airlines are capable of dealing with the higher fuel costs and still raking in massive profits.
I’m recommending the US Global Jets ETF $JETS to profit from the ongoing profitable growth in the airline industry.
Fundamentals: A closer look at JETS
JETS is a new smart beta ETF that launched on May 1st of this year.
It tracks an index of Airlines, Aircraft Manufacturers, and Airports & Terminal Services companies. In order to be included, a company must have a minimum $100 million market cap.
Airline stocks are given the biggest weight. And the largest US domestic airlines are the most prominent. The expense ratio is 0.60%.
The top five holdings and percentage weight for JETS are –
| Company Name | Ticker | % Weight | ||||
| Delta Air Lines | DAL | 12.09% | ||||
| United Continental | UAL | 10.37% | ||||
| Southwest Airlines | LUV | 10.30% | ||||
| American Airlines | AAL | 10.13% | ||||
| JetBlue Airways | JBLU | 4.52% | ||||
| 6/15/15 | ||||||
Technicals: The charts lead the way
JETS is currently trading for $22.39. It’s down 11.95% from the 52-week high of $25.20.
There’s not much of a chart for JETS since it’s only a few months old. So, I’ve analyzed the charts of several of the top holdings.
One common theme is that they’re all coming into key technical support levels. We’re seeing many of the airline stocks returning to prior resistance levels for the first time since they broke out last November.
We typically see buyers step in at these levels and push prices higher. Or at the very least, sellers take a break. In short, this is a good entry point to buy JETS.
Trade Alert
Buy: US Global Jets ETF $JETS up to $23.00
Recent Price: $22.39
Price Target: $30.00
Stop Loss: $19.00
Remember: JETS has pulled back as traders have taken profits on airline stocks. The uptick in oil prices has also sent some investors for the exits. But there’s reason to believe the airlines’ profits will reach record highs and send the entire industry surging higher.
Sector Snapshots
Consumer Discretionary (-0.8%)
Consumer discretionary stocks slipped lower over the last month. The sector has been entrenched in a trading range for months. And there’s no indication that it will break out anytime soon.
The Marked Vectors Gaming ETF $BJK is forming a bottom. This unloved industry has tremendous upside. But it’s not quite ready to make its move higher. We’re in at a great price on this ETF and you can still establish a position below $41.00 if you haven’t already done so.
Consumer Staples (-3.8%)
Consumer staples are another range bound sector. It suffered a 3.8% drop over the last month. Investors are shying away from the defensive sector as the Fed creeps closer to hiking interest rates.
Energy (-4.9%)
The energy sector has slumped over the last few months despite WTIC oil prices stabilizing around $60 per barrel. Investors are steering clear of the sector as uncertainty about future supply and demand fundamentals are weighed out. What’s more, there’s little clarity on overall sector profitability with oil hovering near $60.
Financials (+0.4%)
Financials were the lone sector that posted a gain over the last month. The sector is clearly benefiting from rising long term interest rates and speculation that the Fed will increase US interest rates sometime in the near future. Our Financial Select Sector SPDR Fund $XLF is up 17.6%. There’s still more upside for financial stocks in the current environment. Continue holding.
Healthcare (-0.2%)
Healthcare stocks were modestly lower over the last month. But the uptrend hasn’t been disturbed. The healthcare sector remains one of the strongest sectors around. I think the upside for our iShares US Medical Devices ETF $IHI is off the charts. Continue holding.
Industrials (-3.0%)
The weaker US Dollar and stable oil prices should benefit industrial stocks. But investors just haven’t had the risk appetite needed to propel the sector higher. But that’s mostly due to macroeconomic factors, not anything specific to industrials.
The weakness in industrials over the last month has given us an opportunity to buy Vanguard Industrials ETF $VIS at a great price. And this month we’re recommending the US Global Jets ETF $JETS… see page 5 for more details.
Technology (-2.5%)
Our three technology ETFs have pulled back off their recent highs. I expect to see more consolidation in the sector. These events should spark more upside. Don’t forget that technology ETFs are in a bullish uptrend. The return of any risk appetite among investors should send the technology sector racing higher.
Our Market Vectors Semiconductor ETF $SMH is up 6.6%. SMH has pulled back after a few blockbuster M&A deals sent semiconductor stocks soaring higher at the end of May. Continue holding.
Our First Trust NASDAQ-100 Technology Sector Index Fund $QTEC is all about big tech companies. It’s currently butting up against resistance at $45.00. The breakout above this level failed to hold up and QTEC has drifted back toward technical support.
The Global X Social Media Index ETF $SOCL is up 7.7%. Social media stocks are performing well this year. They’re up more than 14% while the S&P 500 has only managed a 2% gain. Continue holding for more upside.
Materials (-2.7%)
Materials sector slumped 2.7% over the last month. And the bears have been out in full force against economically sensitive cyclical stocks. Our Materials Select Sector SPDR $XLB is now back at breakeven. And the uptrend off the October 2014 low is now under pressure. Once again, uncertainty about the Chinese economy is hurting materials stocks. Needless to say, some better data out of China would do wonders for this ETF. Continue holding.
Utilities (-4.5%)
Utilities stocks are caught up in the fixed income market volatility. The ‘defensive sector’ is down 4.5% over the last month and down 13.7% from the 52-week highs. And there’s likely more pain ahead for this interest rate sensitive sector.
Portfolio Changes
- This month we’re buying JETS.
Category: SET Monthly Issues
