SET Monthly Issue November 2014

| November 18, 2014

November 2014


I can’t believe the holiday season is already here…

It’s a great time of year filled with friends and family.  But don’t forget about the market… it loves the holidays too.

From a historical point of view, now through the beginning of the next year is a great time to own stocks.

These bullish seasonal trends for the stock market have proven time and time again that it pays to be bullish on stocks this time of year.

And that’s just part of the story…

Strong economic data here at home and foreign central banks are also helping investors to be bullish.

The US economy is humming along at a steady pace.  It’s creating new jobs but there’s still enough slack in the economy that inflation is nowhere to be found.

And central bankers from Europe to Japan and China are taking action to jump start their sluggish economies.

It’s no wonder investors are extremely bullish on US stocks right now.  According to theAAII Investor Sentiment Survey, bullish investor sentiment reached its highest level since 2010 earlier this month.

The bullish outlook on Wall Street has pushed the S&P 500 to new all-time highs. Every sector but energy is pushing new highs as well.  But even the downtrodden energy sector has turned the corner and moved higher over the last month.

In short, large cap US stocks are the best place to be right now.

In this type of bull market, there’s one industry that’s almost always leading the market higher…


Intel (INTC) is driving bullish sentiment semiconductor stocks sky high.

The chip maker is coming off a stellar 3rd quarter that saw them beat earnings and revenue estimates.  They also announced an increase to their dividend.  And to top it off, their forecast for growth in 2015 was much more optimistic than expected.

In short, this industry bellwether is signaling that semiconductor stocks are on the verge of another surge higher.

Macro/Economic Trend:  Growth Is Good

There’s nothing that helps drive economic growth like technological advancements.

The ongoing evolution of technological progress increases productivity and creates opportunities for growth that are not seen in other areas of the economy.  And in today’s economy, technology is more important than ever.

The thing that makes it possible is the microchip.

Right now, the semiconductor industry is capitalizing on the widespread growth of mobile computing and the proliferation of wireless internet connections in even remote regions of the world.

And this trend is still far from over…

Smartphone sales are expected to grow at 7% in 2015.  And sales new cutting edge technology like wearables, 3-D printers, and Ultra HD television displays are expected to balloon more than 250% next year.

Needless to say, semiconductor makers have huge opportunities to grow their business as these technologies become more main stream.

The ETF I like to profit from this trend is the Market Vectors Semiconductor ETF(SMH).

Fundamentals:  A closer look at SMH

SMH tracks a rules-based index intended to track the overall performance of 25 of the largest U.S. listed, publicly traded semiconductor companies.

It currently consists of 26 stocks.  The stocks are weighted according to market capitalization.  The expense ratio is 0.35%.  It has a dividend yield of 1.38%.

The top five holdings and percentage weight for SMH are –

Company Name Ticker % Weight
Intel INTC 19.60%
Taiwan Semi Manuf. TSM 15.85%
Micron Technology MU 5.20%
Texas Instruments TXN 5.19%
Asmi Holding ASML 5.16%

Technicals:  The chart leads the way

SMH is currently trading for $54.08.  It’s up 27.6% year-to-date.  That’s clearly a strong performance so far this year.

The ETF has bounced back quickly after a selloff in September and October.  And it has broken out to a new high on good volume and breadth.

This breakout to a new high is an indication that the bullish uptrend is firmly in place.


The technical indicators are clearly pointing toward higher prices in the weeks ahead. But we could see some temporary weakness in SMH.  In other words, we could see SMH pull back to test the breakout around $52.00 before moving higher again.

After that, we should see another period of rapid price appreciation.

Trade Alert

Buy:  Market Vectors Semiconductor ETF (SMH) up to $55.00
Recent Price:  $54.08
Price Target:  $71.00
Stop Loss:  $44.00

Remember:  Semiconductor stocks have been in a strong uptrend.  But they’re still relatively cheap compared to their peak valuation levels in past bull markets.  The recent breakout to a new high is a clear indication investors are bullish on semiconductor stocks.  But we could see SMH test the prior resistance level around $52.00 before the next period a rapid price appreciation.


Consumer Discretionary (+6.4%)

The consumer discretionary stocks are gaining traction as we head into the holiday shopping season.  More jobs, stronger consumer sentiment, falling energy costs, and easing consumer credit conditions are helping drive consumer spending growth.

Our Market Vectors Retail ETF (RHT) has gotten out of the gates quickly.  It’s up 9.3% in the first month.  It looks like we nailed the timing of this trade.  I’m moving RHT to a hold now that it is above our $65.00 buy up to price.

PowerShares Dynamic Media Portfolio (PBS) and PowerShares Dynamic Leisure & Entertainment Portfolio (PEJ) are both pushing toward their highest price in months… and are in position to finish a lackluster year on a strong note.  Continue holding.

Consumer Staples (+5.2%)

Consumer staples have been one of the strongest areas of the market this year.  And the latest surge pushed our First Trust Consumer Staples AlphaDEX Fund (FXG) past our $42.00 price target.  That’s our cue to sell FXG for a gain of 21.8%! Congratulations on a very profitable trade.

Energy (+4.8%)

Energy stocks are down and out as oil prices have fallen more than 30% over the last few months.  But the sector has bounced back from oversold conditions even as crude oil prices remain low.

The big news is that OPEC is meeting in Vienna this week to discuss production levels.

So far there’s been no clear indication that OPEC is willing to cut production to boost prices. But there has been no shortage of speculation…

Whatever the outcome, price stability is the most important thing for oil and gas stocks.  Volatile swings in price will play havoc with the industry and stifle innovation and growth.

Guggenheim Solar ETF (TAN) hasn’t been able to regain the bullish momentum that sparked the big run-up earlier this year.  The industry has been hit by disappointing forecasts from several of the larger companies.  It’s clearly disappointing to see such poor performance from an industry with such great potential.  But I’m not ready to throw in the towel just yet… If this is as bad as it gets, we should see TAN benefit from any improvement in investor sentiment toward solar.

Our Morgan Stanley Cushing MLP Hi Income ETN (MLPY) is our play on US energy infrastructure.  At this point, the drop in oil price and the corresponding cut in energy infrastructure investments have been fully accounted for in MLPY.  Look for MLPY to hold at this level and begin moving higher.  Continue holding…

Financials (+5.4%)

Financials have surged to a new 52-week high.  The Financial Select Sector SPDR Fund (XLF) hit a high of $24.37 earlier this week.  That’s a gain of 14.1% since we recommended XLF earlier this year.  Investors are clearly looking at the improvements in the US economy as a good thing for financial stocks.  Cheap energy and low interest rates are a powerful mixture for economic growth.  And there’s no doubt that financial stocks will reap the rewards of economic growth.  Continue holding.

Healthcare (+5.2%)

Healthcare stocks had another strong month as hedge funds poured money into the sector.  Our First Trust Health Care AlphaDEX Fund (FXH) reached a new high of $59.79.  This ETF is clearly trending in the right direction.  Continue holding.

Industrials (+6.8%)

Industrials enjoyed a strong month.  The sector is being led higher by transportation stocks that are benefiting from lower oil prices.  But the weak outlook for global economic growth has been a headwind for the sector this year.  If the moves by foreign central banks help spark economic growth, we could see industrials move higher in a hurry.

Technology (+6.6%)

Tech stocks are in the sweet spot of the current bull market.  And we need to make sure we have exposure to the hottest industry in the tech sector.  That’s why I’m recommending the Market Vectors Semiconductor ETF (SMH) this month… see the Trade Alert for more details.

Our First Trust NASDAQ-100 Technology Sector Index Fund (QTEC) hit a new high of $43.90. That’s a gain of 6.3%.  However, social media stocks in our Global X Social Media Index ETF (SOCL) have been out of favor over the last few months. But they offer tremendous upside if investor sentiment can recover.

Materials (+6.7%)

Materials rebounded with a strong month.  But there’s still uncertainty surrounding the materials sector.  Economic weakness in Europe, China, and Japan are cutting into the demand for basic materials.  The strong US Dollar is making them more expensive in other currencies.  And oversupply of key basic materials, like aluminum and copper, are all weighing on the sectors growth opportunities even if economic growth accelerates.  That’s not exactly a rosy backdrop and the reason I’m steering clear of materials ETFs for now.

Utilities (+2.0%)

Utilities continue to have a strong year.  The defensive sector that pays a solid dividend is still an attractive investment as long as there’s no clear timeframe for the first interest rates hike.

Portfolio Changes

  • This month we’re buying SMH.
  • FXG sold for gain of 21.8%.


Category: SET Monthly Issues

About the Author ()

Comments are closed.