SET Portfolio Update August 2015

These are the dog days of summer… more often than not, this is a quiet time of year for the financial markets.  And this year is no exception.

Now that we’ve passed the peak of earnings season, there’s sure to be even more major players packing it in for a few weeks of vacation.  And I suggest you do the same… watching the market is akin to watching paint dry right now.

Frankly, we’re seeing the same fundamental and technical factors driving the markets that we have for months on end…

Investors are focused on falling oil prices, slowing growth in China, strong US Dollar, sluggish corporate investment, and concerns about the timing of the first US interest rate hike in nearly a decade.

And the price action is unchanging as well…

As you can see, the S&P 500 has failed to break out of its trading range three times in as many months.  This trading range is the dominant force for lackluster returns.

However, we have seen some sectors perform better than others.  For instance, the healthcare sector and certain parts of the consumer discretionary sector have been bright spots for large cap stocks.

The energy sector has been the big loser this year… it’s down 13% this year.  Thankfully we’ve avoided trying to call a bottom in energy stocks and avoided being caught up in the latest downdraft.

Unfortunately, the materials sector has broken down as the US Dollar strengthens and commodity prices have fallen.

It’s hard to say where we go from here.  Our forecast is economic data dependent, much like the Fed’s first interest rate hike.  And right now the economic data is sending mixed signals.

Now, onto the updates…

. . . . ALPS Medical Breakthroughs $SBIO – Buy

SBIO is living up to its billing as a volatile ETF.  The price has slumped 6% in a month after we recommended it.  But there’s nothing like developmental stage biotech stocks for upside potential. And there’s no doubt that this sector has had bullish momentum this year.  Buy SBIO up to $45.00.  The price target is $80.00.

. . . . US Global Jets ETF $JETS – Hold

JETS is moving higher after the swing low following the news of the Department Of Justice was investigating airline collusion. At a recent price of $24.29, JETS is now above our $23.00 buy up to price.  The price target is $30.00.

. . . . Materials Select Sector SPDR $XLB – Sell

XLB has been hit hard by the rising US Dollar, falling commodity prices, and the slowdown in China.  We were clearly a little too early on this trade that depended on increased demand from China to bring global commodity supply and demand back into balance.  XLB hit our stop loss at $46.00.  That’s our cue to sell and move onto better opportunities.

. . . . PowerShares S&P SmallCap Consumer Discretionary Portfolio $PSCD  – Buy

PSCD hasn’t been able to break out and run higher.  It has managed a meager 1.7% gain since we bought it.  Small cap US consumer stocks are one area that should be doing much better given the recent employment data and consumer data.  I still believe PSCD can be that high flying ETF.  The price target is $66.50.

. . . . iShares Medical Devices ETF $IHI – Hold

IHI is up nearly 5% over the last month to push our paper gain to 8.5%. Clearly, healthcare is one sector that continues to buck the overall weakness in stocks.   The price target is $140.00.

. . . . Market Vectors Gaming ETF $BJK – Buy

BJK tested support at $34.00 a month ago.  Since then, our gaming ETF has moved up 9% off those lows.  The bottoming process has taken a little bit longer than expected due to weakness in China.  Apparently the Chinese have decided they don’t need to travel to Macau when the can leverage up and gamble in the Chinese stock markets.  Nevertheless, there’s still upside for these unloved stocks.  Buy BJK below $41.00.  The price target is $55.00.

. . . . Market Vectors Semiconductor ETF $SMH – Sell

SMH has suffered a major technical breakdown.  SMH has violated a 2-year uptrend and it has had a bearish moving crossover.  It’s time to cut SMH loose before things get worse.  Sell SMH now.

. . . . First Trust NASDAQ-100 Technology Sector Index Fund $QTEC – Hold

QTEC is holding up better than our semiconductor ETF.  It’s still trapped in the trading range that has kept a lid on any upside this year.  But it’s certainly not showing the bearish signals that we see in SMH. Continue holding.  Our price target is $50.00.

. . . . Global X Social Media Index ETF $SOCL – Hold

SOCL has fallen back after a mixed second quarter of earnings.  There’s no doubt that social media stocks are dealing with some growing pains.  But that’s to be expected… the recent price action has more to do with momentum and trend following.  And right now all of that money is moving into healthcare and European stocks that have had bullish momentum.  Our price target is $23.00.

. . . . Financial Select Sector SPDR $XLF – Hold

XLF is up about 20% for us.  Financial companies have improved their balance sheets, they’re adjusting to new regulations, and they are starting to move past legacy issues for past transgressions.  No one is ever going to love these stocks like they did prior to 2008… but they are moving steadily higher.  And their latest quarterly earnings support even higher prices for XLF.  My price target is $29.00.

Action to Take

• XLB hit stop loss at $46.00.
• Sell SMH now.
• Move JETS to hold.

Category: SET Portfolio Updates