SET Portfolio Update April 2013

April 2, 2013

Dear Sector ETF Trader Reader,

It finally happened…

After flirting with new all-time highs over the last few weeks, the S&P 500 finally broke through last week.  The large cap index closed at a new all-time high before the markets shut down for a three day weekend.

The significance of the breakout is certainly more psychological than substance.

You see, investors are drawn to market highs like a moth to a flame.  They just can’t help but feel compelled to put money to work for fear of missing out on the markets next leg higher.

And more often than not, new market highs will draw in everyday investors who have been on the sidelines up to this point.  Obviously, it’s too bad they missed the boat on the massive gains stocks have racked up over the last few years.  But that doesn’t mean there aren’t more gains to be had.

Here’s why…

The US economy is growing faster than expected.  That means companies in the S&P 500 will see earnings grow faster than expected as well.  And when earning growth accelerates, it typically fuels higher stock prices.

What’s more, stocks aren’t expensive.

According to S&P Capital IQ, the average price to earnings multiple of the S&P 500 since 1988 is 17.8.  But right now the stocks that make up the S&P 500 are trading at about 15 times the 12-month trailing earnings.

In short, new market highs, accelerating economic growth, and stocks that are relatively cheap are a potent combination that should fuel more upside in the weeks ahead.

Now onto the updates…

. . . . Market Vectors Agribusiness ETF (MOO) – Buy up to $55.00

MOO is still in consolidation mode.  But I’m expecting big things in the weeks ahead.  First off, the technicals look bullish to me… I’m expecting MOO to resume its long-term uptrend sooner rather than later.  And the fundamentals look good too.  According to the USDA survey on farmers’ planting intentions for the year, farmers will plant 97.3 million acres of corn this year.  The most planted since 1936.  In short, that’s good for agribusiness stock. Grab your shares up to $55.00.

. . . . iShares Semiconductor ETF (SOXX) – Buy up to $60.25

SOXX is having trouble breaking out to a new 52-week high.  Simply put, our semiconductor ETF ran into a brick wall at the previous high around $60.00.  And to make matter worse, it’s putting in the right shoulder of a head-and-shoulders chart pattern. This is a big red flag, so I’m tightening the stop loss to $56.50.  But I’m not ready to pull the plug on this trade just yet.  If SOXX holds above $56.50 and breaks above $60, then the head-and-shoulders pattern will have failed.  And that’s typically a very bullish pattern that could send SOXX soaring.  Keep a close eye on this one in the days ahead.

. . . . iShares US Industrials ETF (IYJ) – Buy up to $81.00

IYJ has basically been flat over the last few months.  But we did capture a nice dividend payment over the last few weeks.  Unfortunately, cyclical stocks haven’t been the leaders I hoped they would be.  But in order for stocks to make another big push, higher cyclical stocks need to take on a leadership role.  Grab your shares up to $81.00.

. . . . iShares DJ US Home Construction Index Fund (ITB) – Hold

ITB is pushing its way higher.  It reached a new high of $24.77 recently.  That’s a sold 12% gain from where we recommended it.  But don’t forget, the housing recovery has only just begun.  And money is flooding back into residential construction.  In fact, private residential construction is up more than 20% in the last year.  This is one rally we’ll continue to ride.  Continue holding ITB for further gains.

. . . . SPDR S&P Bank ETF (KBE) – Hold

KBE has had a nice run this year.  But it’s been a little weak since the European banking issues flared up again a few weeks ago.  But this should only be a temporary setback.  My price target on KBE is $29.00.

. . . . Guggenheim Timber ETF (CUT) – Hold

The bullish fundamentals that are fueling our home builders ETF (ITB) higher are also sending shares of CUT higher as well.  Our timber ETF reached a new high of $23.05.  But there’s still plenty of upside… continue holding.  Our price target is $25.50.

. . . . First Trust NYSE Arca Biotech Index (FBT) – Sell

Biotech stocks have been on fire lately.  And FBT is now within a few pennies of our $55 price target.  Let’s go ahead and take our profits now.  Sell FBT now for a gain of 20%. Congratulations to everyone on a successful trade.

. . . . First Trust Internet Index Fund (FDN) – Hold

Our internet ETF has been in consolidation mode after a strong rally to start the year.  But FDN hasn’t given up much in terms of price.  This is a consolidation by time.  Right now FDN is holding right around support of the 50-day moving average.  And I’m expecting it to resume its uptrend in short order.

. . . . iShares Dow Jones US Basic Materials (IYM) – Buy up to $70.00

IYM is another cyclical ETF that hasn’t taken off the way I expected.  But the shares are still in solid uptrend.  And we know the US economy is strong.  If we get a hint of a recovery in China or Europe, IYM will be off to the races.  Grab your shares up to $70.

Action To Take

• Sell FBT for a gain of 20%!

 

Category: SET Portfolio Updates