SET Portfolio Update December 2010

December 7, 2010

Dear Sector ETF Trader Reader,

Happy Holidays!

I truly enjoy writing Sector ETF Trader for you every month.  I can’t thank you enough for giving me the opportunity to do what I love…

I want to wish you a safe and joyous holiday season.  I’m looking forward to sharing another outstanding year of Sector ETF Trader with you.

Before we get to next year, it looks like our ETFs will cash in on a Santa Claus Rally. Historically December has been a great month for the market.  And so far, it’s off to a great start this year!

Four of our ETFs hit new highs in the last few weeks.  In fact, they all reached their highest price last Friday.  Clearly, the overall performance of our ETFs is looking great!

But I believe the best is yet to come…

You can’t fight the Fed.

Right now Helicopter Ben is dumping money into the financial system.  He wants to inflate the price of stocks and other risky assets to create a “wealth effect”.  He believes higher asset prices will make people feel wealthier.  And the wealthier people feel, the more money they’ll spend.

His goal is accelerating economic activity.  It creates more jobs.  And it inflates consumer confidence and spending.

It’s true the laundry list of risks his easy money policy presents is scary… to say the least. But right now they’re not important.

What’s important to the Fed is pushing stock prices higher.  And that’s great news for our ETFs.

I believe we’re in the early stages of another Fed induced asset bubble.  With history as our guide, investors should be welcoming QE2 with open arms.  But it’s still not fully appreciated!

Remember, stocks rallied uninterrupted from March of 2009 through April of 2010.  It’s not a coincidence this was during the Fed’s original quantitative easing.

If we get the same result this time around, we should see stocks rally through mid 2011 when QE2 is done.

Now for the updates…

Position Updates

. . . . PowerShares S&P Small-Cap Energy Portfolio (XLES) – Hold

XLES is off to an amazing start.  Surging oil prices are the catalyst behind the recent move.  Oil is nearing $90 per barrel.  And could reach $100 per barrel is short order.  Our small cap energy ETF is solidly outperforming their large cap brethren.  So far we’re up more than 13% in less than three weeks!  We’ve passed the buy up to price so I’m moving XLES to a hold.

. . . . Guggenheim Global Solar ETF (TAN) – Sell

TAN is the lone blemish on our portfolio.  Shortly after our recommendation, a slew of solar industry analysts downgraded the entire sector.  They sighted increasing competition and lower government subsides due to spending cuts.  I think the selloff was way overdone.  I still believe in the fundamental story underlying growth in the solar industry.  But nevertheless, TAN closed below our $7 stop loss on November 29th.  So we’re closing out our position in TAN.  If you haven’t already, go ahead and sell TAN now.

. . . . First Trust ISE Global Platinum Index Fund (PLTM) – Hold

PLTM continues to benefit from its dual role as both a precious and an industrial metal. According to a Wall Street Journal report, tougher emissions standards are driving up demand for platinum for use in catalytic converters.  And we all know demand for precious metals as an inflation hedge is red hot.  That’s great news for the platinum miners.  We’re already up about 10% on PLTM.  And there’s still plenty of upside.  Continue holding PLTM for further gains.

. . . . iShares N.A. Technology – Software Index Fund (IGV) – Hold

IGV is extending its uptrend.  We’re now up more than 10% since our recommendation. The fundamentals of the underlying software stocks remain strong.  The cloud computing revolution is starting to gain broad based acceptance.  As more companies shift toward this model, the sky is the limit for IGV.  Continue holding for the next leg higher.

. . . . SPDR KBW Bank ETF (KBE) – Hold

KBE is starting to show signs of life over the last week.  But it’s still facing heavy resistance at the 200-day moving average.  This key technical resistance has repelled KBE the last four times it has approached this level.  I think banks are undervalued.  But as with any value play, it often takes longer to play out.  If KBE can clear the 200-day moving average, it could move higher in a hurry.  KBE is now trading above our buy up to price so we’re moving it to a hold.

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

IHE is regaining its momentum.  It had given back some of its gains over the last month.  But it’s moving up sharply again this week.  Right now we’re up around 13% on IHE.

Remember, drug companies are depending on emerging markets to drive future growth. And the weakening US Dollar should make their international sales all the more valuable. I’m expecting a strong 4th quarter performance.  Continue holding IHE for bigger gains.

. . . . First Trust NYSE Arca Biotechnology Index Fund (FBT) – Hold

FBT shot up 10% shortly after our recommendation.  Since then, it has been in consolidation mode for a few months.  The ETF’s trading in a tight range between $35 and $36.  But that could change in an instant.  FBT gives us good exposure to companies capable of delivering positive clinical data or a potential M&A deal at any time.  With the tremendous upside in biotech stocks, I think we should continue holding for the next leg higher.

. . . . iShares Dow Jones U.S. Consumer Services Sector Index Fund (IYC) – Hold

IYC is racing to new heights.  The US consumer is proving to be resilient.  Expectations for a strong holiday shopping season are driving up retail stocks across the board.  We’re now up more than 14%.  But there’s still room for IYC to run.  Hold tight for further gains.

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

IYR’s uptrend continues despite an awful housing market.  Clearly the residential housing market faces stiff headwinds.  But that’s not necessarily a bad thing for REITs.  In fact, residential REITs should see demand for apartments increase.  After all, former home-owners still need a roof over their head.  That’s great news for the REITs specializing in multifamily housing.  Hold tight for further gains ahead.

. . . . SPDR S&P Semiconductor (XSD) – Hold

XSD is red hot.  We’re now up a whopping 22% on our semiconductor ETF.  This a great sign for the overall market.  Simply put, semiconductor stocks don’t lead the market if the economy is contracting.  But over the last month, that’s exactly what XSD is doing.  In fact, XSD is now approaching the 2007 highs.  Keep an eye on XSD as it approaches our $57 price target.

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

XLU has pulled back a bit over the last month.  It’s currently trading at around $31.  The good news is XLU continues to shell out a solid dividend as we wait for utilities to make their move.  It’s currently yielding 4.25%.  Hold tight for now.

Action To Take

• Sell Guggenheim Global Solar ETF (TAN)
• Move SPDR KBW Bank ETF (KBE) from Buy to Hold
• Move PowerShares S&P Small-Cap Energy Portfolio (XLES) from Buy to Hold

 

Category: SET Portfolio Updates