SET Portfolio Update August 2014

August 5, 2014

Welcome to the dog days of summer.

It’s the time of year when the action on Wall Street dwindles down to a trickle.  We see it every year… droves of big players leave the concrete jungle for their beach house or mountain chateau.  And anything can happen in these thinly traded markets.

In other words, the dramatic selloff that sent the S&P 500 down 3.5% over the last few weeks isn’t surprising.  It’s the kind of thing that often happens in thinly traded markets.

The selloff caused the S&P to close below its 50-day moving average for the first time since April 15th.  But it remains above the 200-day moving average and the upward trending support level connecting the previous lows over the last two years.

 

What’s more, I think the economic data continues to be in the Goldilocks range – it’s not too, it’s not too cold.

For instance, the latest jobs data shows the US economy added a solid 209 thousand jobs while the unemployment rate ticked slightly higher.  GDP rebounded with a 4% annual growth rate in the second quarter, but 1% of the growth was contributed to inventory build-up.

That’s the type of economic growth that will continue to put people back to work but won’t trigger inflation… that means the Fed won’t be forced to start raising interest rates sooner than expected.

Here’s the bottom line…

The bull market is still intact and economic data is just right for the market to continue moving higher.

Now, onto the updates…

. . . . Global X Social Media Index ETF (SOCL) – Buy up to $20.00

SOCL is our most recent recommendation.  It got a nice boost from great 2nd quarter earnings from some notable social media companies like Facebook (FB) and Twitter(TWTR).  Those earnings quickly quieted some of the overvaluation fears the Fed had mentioned.  Grab your shares up to $20.00.

. . . . Guggenheim Shipping ETF (SEA) – Buy up to $23.25

SEA has fallen back in lock step with the overall market the last few weeks.  It’s currently just above support of the 200-day moving average and the previous low around $21.00. As long as these technical levels hold, SEA should rebound quickly.  One thing that should help shipping companies is China.  Their PMI and import data had strong results last month. Grab your shares up to $23.25.

. . . . iShares MSCI Global Metals & Mining Producers (PICK) – Hold

PICK rallied to a new high of $21.80 before pulling back to $21.06.  The recent improvement in China’s economic data, combined with India’s planned infrastructure investments, should boost demand for these companies’ products.  Continue holding.

. . . . Market Vectors Unconventional Oil & Gas ETF (FRAK) – Hold

FRAK has pulled back as crude oil prices have fallen back below $100 per barrel.  But the US onshore oil and gas sector continues to ramp up production.  Any weakness due to falling oil prices should be short lived.  Continue holding.

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

Financials failed to build on bullish momentum they had been building over the last few months.  They were hit hard by the market selloff over the last week.  The weakness is due to 2nd quarter earnings that highlighted a drop in trading revenue and increased regulatory costs.  There’s no doubt that financials are a tremendous value based on their long term history of profitability.  But so far they haven’t shown the ability to regain the previous levels of profitability under the new regulations.  Continue holding…

. . . . Guggenheim Solar (TAN) – Hold

TAN is having a volatile year… but I’m bullish on the long term outlook for solar.  The steep decline in the cost of solar has made it much more competitive with traditional energy. This is one ETF we just have to ride out the short term fluctuations because the fundamentals for long term growth are very bullish.  Continue holding.

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

FXG outperformed the S&P 500 by a wide margin throughout May and June.  But it has taken a step back as the market has sold off over the last few weeks.  This weakness should only be temporary… Continue holding.

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

PEJ has taken a hit from its exposure to McDonald’s (MCD) and Yum! Brands (YUM). These fast food companies have been hit hard by the China meat supply scandal.  And it’s having a negative impact on their Chinese sales.  I believe the bad news has been fully accounted for at this point.  In fact, I think the selloff has been overdone.  We should see MCD and YUM rebound from here.  That should help PEJ regain its bullish momentum. Continue holding.

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

PBS has held up well as the market sold off over the last few weeks.  That’s a good sign for media stocks that have been volatile this year.  This ETF is clearly showing relative strength… PBS should outperform once the markets begin moving higher again.  Continue holding.

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

MLPY has been on a great run this year. We’re currently up 19% on this trade including dividends.  This high dividend producing ETF did take a step back from the recent highs as investors became fearful the Fed could begin to raise interest rates sooner than expected. I believe these fears are overblown… high income producing ETFs, like MLPY, are the only way to generate decent income from your investments these days.  Continue holding.

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

ITB has slipped to its lowest levels of the year after data showing the home ownership rate in America fell to its lowest level in 19 years in the 2nd quarter.  The memory of the housing bust is clearly having a negative impact on many younger people.  They’re simply choosing to delay the purchase of their first home until later in life. It’s time to face the reality that the weak homebuilder data isn’t an anomaly caused by poor weather.  This is a fundamental change in consumer behavior.  This trend suggests that homebuilders may suffer through many more years of sluggish sales.  It’s time to take our small profit on ITB and focus on ETFs with better upside.  Sell ITB now for a 1.5% gain.

Action To Take

• Sell iShares DJ US Home Construction Index Fund (ITB)

 

Category: SET Portfolio Updates