SET Portfolio Update April 2012

April 3, 2012

Dear Sector ETF Trader Reader,

I sound like a broken record, but when I’m talking about a rally that can’t stop… repetition is a good thing!

Even though we’ve had a few rocky trading days over the past couple weeks, as we speak, the rally remains intact.  In fact, the S&P, NASDAQ, and Russell 2000 have all gained double digits percentages this year alone!

Even a down piece of economic news here or there can’t seem to put a stop to the run-up going on in stocks.

And it’s all due to the improvement of major economic data…

For starters, Chinese PMI results were released on Sunday.  Amazingly, the report smashed the forecast of 50.8… reaching 53.1!  It’s looking like we won’t need to worry about a “hard landing” for the Chinese economy.

What’s more, US data continue its uptrend.

We’re seeing the housing market pick up, consumer confidence grow, and most importantly… unemployment continues improving.  In February, the US economy added 227,000 jobs.  More notably, the initial jobless claims reading for the week of February 25th came in at just 351,000.

That’s the lowest level in four years…

If employment improves, that will mean more gainfully employed Americans.  Once employed, workers tend to spend more… thereby boosting the economy.  It’s a win-win proposition.

Remember, we’re in the midst of an election year.  As a result, lawmakers on both sides of the aisle will be doing their best to ensure voters are quite happy with their performance.

This goes double for the incumbent party.  If they can get unemployment down below 8%, keep gas prices under control, and fatten up shareholders’ pockets… they’ll ensure voters will keep Obama in office for another four years.

Now onto the updates…

Position Updates

. . . . SPDR S&P Homebuilder ETF (XHB) – Buy

We just rolled out our XHB trade and it’s bouncing around our buy price at the moment. After tacking on 20% this year, XHB appears to be consolidating before the next leg up. We’ve seen mixed, but mostly positive homebuilder data.  The fundamentals remain strong for XHB as the housing recovery just gets underway.  Buy this ETF up to $22.25.

. . . . SPDR S&P Retail (XRT) – Buy

Since our trade was released just two weeks ago, XRT is up a modest 1.1%.  Improving employment and growing consumer confidence produced the best retail sales report in the past five months in February.  In fact, US auto sales were up in March as well.  And that bodes well for the remainder of the retail sector.  We’ll see a clearer picture in this week’s ICSC chain store sales report, which I expect will beat estimates.  Buy XRT up to $62.50.

. . . . Industrials Select Sector SPDR ETF (XLI) – Buy

The industrial sector has been trading up and down in lockstep with global growth data. And at the moment, our XLI trade is still up by 1.5%.  The good news is Bespoke Research reports the industrial sector as one of the few that’s not overbought.  And that’s saying something during this powerhouse rally!  What’s more, the recent strong PMI report from China bodes well for the industrials.  As such, continue buying XLI up to $38.25.

. . . . SPDR S&P Insurance ETF (KIE) – Hold

The financial sector remains hot in 2012.  As a result, our KIE trade is gaining at a steady pace.  Right now, the insurance industry awaits the outcome of the Supreme Courts “Obama care” decision.  If the high court overturns the law, heath insurers are poised to benefit.  One of the components of the current law is the requirement of insurers to increase coverage for pre-existing conditions.  Obviously, if that’s defeated, insurers will retain more profits.  KIE traded over our buy to price, so let’s hold shares of this ETF for bigger gains.

. . . . PowerShares Dynamic Food & Beverage (PBJ) – Hold

PBJ has gained nicely since we rolled out the trade.  In fact, this ETF eclipsed the $20 level to turn in a 5.2% gain on our trade.  With companies like McDonald’s (MCD),Hershey (HSY), and Kraft Foods (KFT), you can understand how PBJ will remain a consistent performer.  With no signs of the current rally slowing, hold PBJ for greater gains.

. . . . iShares S&P N.A. Tech-Software Index Fund (IGV) – Hold

The software industry is on fire right now… and IGV is surging in the process.  In fact, our trade is up over 14% as a result.  With earnings reports from some of IGV’s top holdings starting to roll out, we should see a real push higher in the ETF.  For example,Red Hat (RHT) surged over 20% in one day after shattering earnings estimates.  I expect the same type of results from others in this ETF.  Hold shares of IGV.

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

XLU continues to trade in a tight range.  While we’d like a better return from any of our holdings, XLU can play a solid role in any portfolio right now.  We’re still up 8% since we rolled out this trade last year.  And if by chance, the rally falls apart…. investors would end up piling back into defensive plays such as XLU.  And that would cause the ETF to surge.  Let’s continue holding XLU for now.

. . . . iShares FTSE NAREIT Residential Plus Capped Index Fund (REZ) – Hold

REZ finally broke through to new 52-week highs.  In the process, we’ve seen our trade surge higher by 22.6%!  With mixed but positive homebuilder data out recently, I’d say we’re looking at the beginning of the housing recovery.  As such, continue holding REZ for even more gains.

Action To Take

• Move SPDR S&P Insurance ETF (KIE) to a Hold

 

Category: SET Portfolio Updates