SET Portfolio Update August 2010

The bad news is… it’s still just a short term trend.  The markets need to build on this momentum and continue to charge higher.

The problem is the economy is clearly in transition right now.  It’s moving from growth fueled by government stimulus spending to one driven by private sector growth.  And the transition has been a little bumpy…

It’s created some uncertainty in investors’ minds.  But I think it’s a good thing.

I’m sure you’ll agree, some of the most profitable opportunities present themselves in times like this.

It just takes a little courage to buy when everyone else is afraid.

That’s why we use a disciplined strategy.  We want to position ourselves in the strongest sectors with explosive potential.  But we’re also willing to cut our losers short.

It’s how we rack up big profits time and time again.

Now for the updates…

Position Updates

. . . . iShares Pharmaceuticals Index Fund (IHE) – Hold

IHE shot past our buy up to price in a matter of days.

Solid earnings and a stable outlook from major drug companies like Abbott Laboratories (ABT), Bristol Myers Squibb (BMY), and Eli Lilly (LLY) are a good start.

Safe drug companies’ stocks are attracting a lot of investor attention lately.  I’m expecting investors to continue flocking to them.  Continue holding IHE for further gains.

. . . . iShares Oil Equipment and Services Index Fund (IEZ) – Hold

IEZ hit the accelerator right after we recommended it.  It’s up almost 9% in just a few weeks.  Not too shabby.

BP (BP) finally capping the leaking oil well sent a wave of relief through the industry.  It’s like I said in the trade alert.  The ‘fear factor’ caused the industry to be mis-valued.  Now this imbalance is being corrected.  Continue holding IEZ for further gains.

. . . . First Trust NYSE Arca Biotechnology Index Fund (FBT) – Buy up to $33.25

FBT has bounced back splendidly.  Remember, biotech stocks tend to move quickly.  But they need some sort of catalyst to spark the move.

So far we haven’t had any earth shattering developments.  But M&A and new drug developments can erupt at anytime.  Go ahead and buy FBT up to $33.25.

. . . . iShares Dow Jones U.S. Consumer Services Sector Index Fund (IYC) – Buy up to $61.00

IYC’s come charging back like a freight train.  But consumer stocks are facing a headwind. Consumer spending has tapered off recently.

Everything hinges on jobs.

If the job market begins to improve, consumer spending should pick up.  And there’s reason to be optimistic.  Employment levels typically begin to rise within 12 months of a recession’s end.  If this holds true, we should see a rebound in consumer spending soon. Go ahead and buy IYC up to $61.

. . . . iShares Dow Jones U.S. Real Estate Index Fund (IYR) – Hold

IYR’s dazzling recovery has been wonderful to watch.  IYR hit a new peak gain of over 8% yesterday.  Clearly things are looking up for our REIT ETF.

Take a look at the chart of IYR and you’ll see a solid technical setup.  IYR has been one of the best performing ETFs throughout the recent correction.  If it can clear resistance around $55, IYR should move higher in a hurry.  Continue holding IYR for further gains.

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

Materials stocks had been under attack.  Investors feared the economic recovery was stalling.  But basic materials have made a quick about face this month.

And RTM shot up more than 16% since July 1st.

Good enough to make RTM one of the best performing ETFs over the last 30 days.

It’s like I said in our last update…

“The driving force behind materials next move will be China.  I think the concerns about growth and inflation have been overblown.  I think strong growth and tame inflation will stoke demand for basic materials stocks.”

We’re seeing investment dollars flood into China and other developing economies.  Hold tight while RTM continues its stunning comeback.

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

The semiconductor industry has made an awe-inspiring comeback from the 2008 recession.  Recently, world dominator Intel (INTC) posted record earnings.  And they gave an upbeat outlook for the rest of 2010.

But investors have been hesitant to bid up tech stocks recently.  Here’s my take…

A few key players like NVIDIA (NVDA) fell short of analysts’ earnings expectations.  They blamed a weakening economy in Europe and Asia.  The truth is NVDA is falling behind the competition.

Nevertheless, investors are worried about a recovery in tech spending.  I think XSD still has spectacular upside.  Go ahead and buy XSD up to $48.

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

Last month I said, “There’s clearly a disconnect between investor expectations and corporate guidance…”

And wouldn’t you know it, IYT promptly rallied more than 16%.

This kind of leadership out of the transportation stocks is extremely bullish.  We’ll often see a strong move in transportation stocks precede one in the broader stock market.  Hold tight for now.

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

XLU is fluctuating between $31 and $28.  And we’re collecting a solid dividend while we wait for XLU to regain its momentum.

Utilities are a bit frustrating.  Their solid fundamentals and high dividend yields seem to make an ideal marriage with today’s uncertainty.  But their boring reputation keeps some investors away.  When investors eventually catch on, XLU should soar.  Hold tight for now.

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

The world of junior gold miners is as lively as ever.  GDXJ has pulled back a bit lately.  But that’s changing right now.

You see, gold prices pulled back to their long term uptrend.  The support line held.  Now gold prices are moving higher once again.  GDXJ will move higher along with gold prices.

Go ahead and buy GDXJ up to $28.

Action To Take

• Move iShares Pharmaceuticals Index Fund (IHE) from Buy to Hold
• Move iShares Oil Equipment and Services Index Fund (IEZ) from Buy to Hold
• Move iShares Dow Jones U.S. Real Estate Index Fund (IYR) from Buy to Hold

Category: SET Portfolio Updates