SET Portfolio Update April 2014

April 1, 2014

Due to the rapidly deteriorating market conditions, I’ve decided to sell all of our open ETF positions and invest in Bitcoin.  Because, you know, how can investing in an unregulated market for an invisible cryptocurrency not produce huge profits!

April Fools!  Sorry, I couldn’t resist a chance to poke fun at Bitcoin.

All fooling aside, the first quarter of 2014 hasn’t been great for the stock market.  The S&P 500 is up a mere 0.5%.  But it’s also within 1% of the all-time high.  So, it’s not the end of the world either.

As the quarter comes to an end, there are some very important changes taking place.

Right now, there’s a rotation out of high-flying sectors like biotech and many of the momentum stocks that have been the big winners over the last year.  It’s why we’ve seen the Nasdaq drop 3% off the highs while the S&P 500 is nearly unchanged.

As high-flying momentum stocks fall out of favor with investors, cyclical sectors and sectors with cheaper valuations have been on the upswing.

Here’s the thing…

We knew this would happen at some point.  The market moves in cycles.  Sometimes growth and momentum lead the way.  At other times, cyclical stocks are hot.  And at others, value and cheap stocks take the lead.

It’s why we’ve had a mix of hot growth ETFs like alternative energy and consumer discretionary as well as cheaper undervalued ETFs like financials in our portfolio.

The bottom line is there are always opportunities to outperform the market.  And I’ll do my best to keep us out in front of the changes.

Now, onto the updates…

. . . . PowerShares Dynamic Biotech And Genome (PBE) – Sell

The dramatic change in investor sentiment toward biotech stocks sent PBE through the tight stop loss we placed on this trade.  The change in sentiment was furthered by Congress launching an investigation into the pricing of some new biotech drugs.  This happens from time to time.  The trade setup looked great when we sent the trade out. But things deteriorated quickly.  The stop loss triggered at $42.00.  Everyone should be out of PBE with a small 5.5% loss.

. . . . Financial Select Sector SPDR (XLF) – Hold

Financials are one of the big winners with the rotation into cyclical and value stocks. What’s more, the indication from the Fed that interest rates will begin to climb sooner than expected should provide a nice lift to financials.  XLF has climbed above our $22.25 buy up to price.  I’m moving XLF to a hold.

. . . . Guggenheim Solar (TAN) – Hold

TAN has taken a step back from its recent highs.  But this momentum ETF is still in a strong long term uptrend.  What’s more, the rapid expansion of solar and the increasing profitability of solar companies are strong fundamental reasons to believe the run can continue.  Continue holding.

. . . . First Trust Consumer Staples AlphaDEX Fund (FXG) – Hold

FXG is benefitting from the rotation into value.  At $36.88 per share, our consumer staples ETF is just below the 52-week high.  Continue holding for bigger gains.

. . . . PowerShares Dynamic Leisure and Entertainment (PEJ) – Hold

PEJ has been more volatile than usual lately.  The rotation out of growth and into value has certainly had an impact on PEJ.  But don’t underestimate the power of the American consumer.  The recent uptick in consumer confidence is a strong indication that we could see consumer spending rise in the months ahead.  Continue holding.

. . . . PowerShares Dynamic Media Portfolio (PBS) – Hold

PBS has been on a roller coaster ride through the first quarter of 2014.  The new price channel is bullish, but not nearly as strong as the uptrend that helped make it the top performing consumer discretionary ETF in 2013.  Right now PBS is moving higher after testing the 2014 low.  Continue holding.

. . . . iShares Transportation ETF (IYT) – Hold

IYT is outperforming the S&P through the first quarter of 2014.  And the outlook for accelerating economic growth in the 2nd quarter bodes well for transportation stocks. Continue holding…

. . . . First Trust Global Wind Energy (FAN) – Hold

FAN has held up better than our other alternative energy ETF, TAN, over the last few weeks.  In fact, FAN is only down about 3% from the recent high.  We’re quickly approaching our $12.75 price target.  The next leg higher should push FAN over the top. Continue holding…

. . . . First Trust NASDAQ ABA Community Bank Index Fund (QABA) – Hold

QABA is on the upswing thanks to Fed Chairman Janet Yellen.  She indicated the Fed could begin to raise interest rates six months after they end their bond purchase program.  That puts the timing of the first interest rate hike in mid-2015… much sooner than most expected.  Rising interest rates make it easier for banks to make money.  What’s more, the recent ISI Bank Loan Survey showed business and consumer lending is at the highest level since 2008.  Continue holding…

. . . . Morgan Stanley Cushing MLP High Income Index ETN (MLPY) – Hold

MLPY is rolling along.  We should have another dividend payment coming our way soon.  Those that already bought it should continue to hold.

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

ITB has fallen back as a slowdown in new home sales has weighed on home builders.  The recent sales have been impacted by unusually cold winter.  That should set the stage for a strong spring selling season as the weather warms.  Continue holding.

Action To Take

• Sell PowerShares Dynamic Biotech and Genome (PBE)

 

Category: SET Portfolio Updates