SET Portfolio Update April 2010

April 6, 2010

The stock market continues to forge ahead.  Since February 5th, the S&P 500 has tacked on 133 points… that’s a rally of more than 12%.

And small cap stocks are fairing even better.  The Russell 2000 has racked up gains of more than 17% over the same time.

Clearly, investors in search of higher returns are putting money to work in riskier small cap stocks.  And so far it’s a recipe for success.

The markets success hinges upon continued economic improvement.

And the latest round of reports show we’re heading in the right direction.  Just last week, the all important housing and unemployment reports came in.

The Case-Shiller Home Price Index indicated US home prices actually increased in value. Now a few months of gains isn’t going to heal the housing market.  But it does show the housing market may finally be bottoming out.

The unemployment and jobs reports were more of a mixed bag.  But the overall feeling I came away with is the situation is getting better.  I’m holding firm to my prediction that the economy will begin adding jobs in earnest by the end of the second quarter.

As long as the economy continues to show signs of improvement, the market should continue to move higher from here.

But that doesn’t mean the markets are going to continue climbing straight up.  More than likely, the markets will make some sort of short term correction before resuming their upward trend.

I see a short term pullback based on technical analysis.  The two month rally is very extended and looking severely overbought.

And to top it off, the S&P 500 is also looking at heavy resistance between 1,190 and 1,225.  (That might keep a lid on any big rally.)

Now the reality is, markets can stay overbought and overextended for long periods.  So trying to pick a short term top is almost impossible.  But I believe the odds favor a short term pullback before the market resumes it upward momentum.

Now for the updates…

Position Updates

. . . . Rydex S&P Equal Technology ETF (RYT) – Buy up to $48.15

RYT’s had a big run over the last two months.  The rally’s cooled off a bit since we recommended RYT last month.  But the uptrend is still in place.  The fundamental picture for tech companies continues to improve.  Businesses and consumers alike are spending money on new technology.  As long as the economy continues its steady improvement, RYT should continue to be among the markets leading sectors.  Go ahead and buy RYT up to $48.15.

. . . . Market Vectors Agribusiness ETF (MOO) – Buy up to $46.50

MOO’s been in a consolidation phase since we recommended it last month.  However, the fundamental and technical picture is still bullish.  MOO hasn’t sprinted from the starting gates because of weakness in one of the large holdings.  Monsanto (MON) makes up more than 7% of the ETF.  MON will release its most recent quarterly earnings on Wednesday.  If MON provides upbeat guidance about its future potential, MOO could be off to the races.  Go ahead and buy MOO up to $46.50.

. . . . Rydex S&P Equal Weight Materials ETF (RTM) – Hold

RTM continues its winning streak.  The materials sector is benefiting as investors continue to pour money into more economically sensitive sectors.  RTM’s now up more than 14% since we recommended it in February.  RTM’s equal weight index is delivering bigger percentage gains than market cap weighted materials ETFs.  It’s the performance of the smaller companies that’s pushing RTM to new 52-week highs.  As long as investors remain optimistic about economic recovery, RTM should have no problem making it to our price target in short order.  Hold tight for now.

. . . . SPDR S&P Semiconductor (XSD) – Buy up to $48.00

XSD was able to set new 52-week highs this month.  But it failed to build upon its momentum once it broke out to the new high.  XSD has “head faked” on two separate occasions in the last two weeks.  A head fake is a failed breakout.  At some point, XSD is going to breakout and continue higher… The fundamentals for the semiconductor business are just too strong.  Go ahead and buy XSD up to $48.

. . . . iShares Dow Jones Transportation Average Index Fund (IYT) – Hold

IYT staged a “V” shaped reversal to breakout to new 52-week highs.  The rally sent IYT past our buy up to price.  Remember, this sector is a leading indicator of economic improvement.  As the economy improves, more of everything from raw materials to finished products are shipped.  IYT should continue moving higher as long as economic conditions continue to improve.  Hold tight for now.

. . . . Utilities Select Sector SPDR Fund (XLU) – Hold

XLU is once again attempting to break out of the trading range between $28 and $30.25. This range has dominated XLU’s price action for most of the last eight months.  But that could be changing soon.  Here’s why… XLU is nearing resistance of its long term downtrend.  This downtrend has been in place since the sector peaked in 2007.  If XLU clears this resistance, it’s a very bullish sign for the utilities sector.  Hold tight for now.

. . . . Market Vectors Junior Gold Miners (GDXJ) – Buy up to $28.00

GDXJ is now in a confirmed uptrend.  After bottoming out in early February, along with the rest of the stock market, the junior gold miners are on a roll.  They have set three higher highs and two higher lows.  This setup is extremely bullish.  Remember, the gold miners are a leveraged play on rising gold prices.  And it looks like gold is setting up for another rally. Gold’s recent price action is very bullish considering it’s going up in price at the same time as the US Dollar is strengthening.  Go ahead and buy GDXJ up to $28.

. . . . SPDR S&P Homebuilders ETF (XHB) – Hold

XHB’s uptrend continues.  We’re sitting on an 11% gain in the homebuilders right now.  And I’m expecting improving economic conditions to fuel bigger gains ahead.  The recent deadline to qualify for the homebuyer tax credit is causing pending homes sales to spike. This should help boost XHB over the next few months.  But ultimately the homebuilders need unemployment to improve to continue moving higher.  Hold tight for now.

. . . . Vanguard Industrials ETF (VIS) – Sell

VIS has staged a big rally over the last two months.  It’s up a whopping 19% since early February.  The rally sent VIS through our $58 price target on March 30th. Everyone should have locked in their 32.5% gain!  If you haven’t already, go ahead and sell VIS now.  Congratulations on a successful trade.

Action To Take

• Sell Vanguard Industrials ETF (VIS) for a 32.5% gain!

 

Category: SET Portfolio Updates