SET Portfolio Update December 2009

| December 1, 2009

December 1, 2009

I want to take a second to wish you and your family a Happy Holiday.

Thank you for being a loyal subscriber to the Sector ETF Trader.  I truly appreciate your trust in me.  Next year is looking like an exciting one, and I’m looking forward to bringing you some great ETF ideas in the New Year.

Here’s our last portfolio update of ’09.

The weak dollar – strong stock and commodity dynamic continues to be the dominant force in the market.  I’m not going to repeat last month’s comments, but they still apply.

Dubai reminded us the world economy is still on shaky ground.  Rumors of Dubai defaulting on $60 billion worth of debt set a shockwave through the markets.

Because the news hit during a holiday shortened week only amplified the market reaction.

Now it appears the whole thing was “misunderstood” according to government officials.  If nothing else, this serves as a reminder the markets are vulnerable to market shocks.

Commercial real estate continues to be a source of new fear.

Commercial real estate was overbuilt during the last real estate boom.  The overbuilding happened everywhere from the US to Europe and even Asia.

Now, many land developers are sitting on vacant office, retail, industrial, and warehouse space.  They never intended on owning the property this long.  Luckily the last boom gave the industry a sizeable cash cushion.  They’re able to stay liquid longer than individual home owners.  That’s why we haven’t seen the same level of defaults on commercial real estate loans as we have in the residential real estate loans… yet.

But their cash isn’t going to last forever.

Eventually, commercial developers need to start selling and leasing these properties.  That’s a tall order.

Unfortunately, the only solution to the oversupply of commercial properties is economic growth.  And even with growth, it will take years to work off the oversupply.  The biggest losers in a commercial real estate meltdown will be regional banks.  The regional banks financed a large portion of the construction loans at risk.

All we can hope for is solid economic growth to solve the problem.

Outside of the risk of a commercial real estate blowup, the economic recovery appears to be rolling along just fine.  As long as the economic data’s improving, there’s no reason to think the market’s going anywhere but up.

Now for the updates…

Position Updates

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

Gold prices moved wildly because of the Dubai debt fears last week.  Investors dumped risky assets and poured money into US Dollars.  The US Dollar’s still king when it comes to risk aversion.  The spike in the US Dollar sent gold prices down temporarily.  Now that a Dubai debt crisis has been averted, the dollar is heading lower and gold prices are recovering.  A trend I expect to continue.  We’re closing in on our buy up to price so go ahead and open a position if you haven’t already.

. . . . SPDR S&P Oil & Gas Exploration and Production ETF (XOP) – Buy up to $45.00

Exploration and production companies are holding steady as oil prices have pulled back from $82 to between $75 and $80 per barrel.

Once we get the first signs of rising energy consumption, exploration and production companies will be out in force.  The recent pullback should only be a temporary blip.  As far as XOP itself, it’s holding above support at $38.  Go ahead and use this pullback as an opportunity to pick up these shares at a discount if you haven’t already.

. . . . SPDR S&P Homebuilders ETF (XHB) – Buy up to $16.25

As we expected, the US government extended the first time home buyer tax credit until April 2010.  And they expanded it to include a $6,500 credit for existing homeowners.  This should continue to spur home sales for the next few months.  XHB is holding above support of the uptrend in place since March.  Go ahead and buy XHB up to $16.25.

. . . . Market Vectors Gaming ETF (BJK) – Buy up to $27.00

Right now the casinos are still suffering from below average hotel room rates.  But the upside potential for the industry is amazing.  As more discretionary income comes back into the marketplace, room rates and gambling profits will rise.  Then BJK should really take off.  We’re well below our buy up to price so go ahead and pick up some shares if you haven’t already.

. . . . SPDR S&P Retail (XRT) – Hold

XRT broke support of its five month uptrend and 50-day moving average.  This could be a sign traders are rotating out of the sector.  I’ll be keeping a close eye on this one.  Hold tight for now.

. . . . Vanguard Industrials ETF (VIS) – Hold

The manufacturing sector continues to show signs of improvement.  It should continue improving as the dollar weakens and the economy improves.

VIS set a new high this month.  The uptrend and 20-day moving average are supporting VIS as it attempts to set another new high.  Hold tight for now.

. . . . iShares S&P North American Technology – Software Index Fund (IGV) – Hold

Software companies (and IGV) are now the strongest segment of the tech industry.  They were able to set a new high this month when the rest of the tech industry failed to retake the September and October highs.  This is a good sign, it shows the software industry is poised to outperform.

IGV is riding support of the 50-day moving average higher.  Hold tight for now.

. . . . Market Vectors Agribusiness ETF (MOO) – Hold

MOO broke through resistance at around $42 and is poised to make another move higher.

The leading seed and fertilizer companies in MOO are rocketing higher on expectations of a recovery in Ag spending.  A weakening US Dollar should boost international sales as well.  Hold tight for now.

. . . . SPDR S&P Metals and Mining ETF (XME) – Hold

Make sure you keep track of XME as it closes in on our $51 price target.  The $50 level has been a strong level of resistance.  XME is consolidating between this resistance and support of the 20- and 50-day moving averages around $47.  It looks like a breakout to the upside is coming in short order.

. . . . Energy Select Sector SPDR Fund (XLE) – Hold

Energy sector stocks are holding steady as oil prices stabilize between $75 and $80 per barrel.

XLE’s price has a strong floor of support from the 50-day moving average and the uptrend just below current levels.  Any strength in oil prices should send XLE to our price target. Hold tight for now.

. . . . SPDR S&P Semiconductor ETF (XSD) – Hold
. . . . iShares S&P N. American Tech – Multimedia Networking Index Fund (IGN) – Hold

Tech stocks are one of the best performing sectors this year.  We’re sitting on gains of 40% in XSD and 31% in IGN!

After an impressive run, tech stocks have run into resistance.  They’re really a victim of their own success.  They recovered faster than the rest of the market.  And now, investors are demanding real improvement before sending them higher.  It’s led to some weakness in the tech sector over the last month or so.  There’s still a good chance tech stocks regain their leadership role as the economy improves.  I’m keeping a close eye on both them.  Hold tight for now.

Action To Take

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Category: SET Portfolio Updates

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