SET Portfolio Update December 2011

| December 6, 2011

December 6, 2011

Dear Sector ETF Trader Reader,

It’s time for a Santa Claus rally… but will it happen this year?

A quick look at market seasonality shows December is typically a great month for stocks. Over the last 20 years, the Dow has been positive 70% of the time.  And its average gain is 1.8% for the month.

Clearly, the Santa Claus rally isn’t imaginary.  But it will take a miracle for it to happen this year.


In a word… Europe.

And to be more specific, I don’t think Europe can solve their financial crisis.  I just don’t believe they can throw centuries of conflict and mistrust out the window.

Look, sharing a common currency is one thing.  But to actually unite Germans, French, Italians, and Spaniards under a single governing body is a pipe dream.

Despite what the politicians say, the idea of a United States of Europe is farfetched.  And without a central governing body with the final decision on budgets, there’s no way to save the European Union.

In fact, I believe the situation is worse than anyone is letting on.

Just last week, the Federal Reserve, the ECB, and Bank of England were forced to take coordinated action to boost liquidity for European banks.  It’s pretty clear something bad (like a major European bank failing) was about to happen to provoke such a strong response.

Simply put, if Europe isn’t fixed, then stocks aren’t going anywhere.

But that’s just part of the story…

The chart of the S&P 500 doesn’t bode well for a Santa Claus rally either.

As you can see in the chart below, the S&P is up against stiff resistance from two overlapping resistance levels.


The first resistance is the 200-day moving average (gray line).  And the other resistance level is the March and June lows (blue line).

Both of these levels are strong technical resistance on their own.  And when they overlap like they are now, it’s like a ceiling of bullet proof glass is just overhead.

As a result, it looks like Santa Claus won’t be making his usual delivery this year.

Thankfully, it’s not all bad news.

The US economy is still chugging along.  Our economy is still growing despite all the troubles around the globe.  And as long as the US is stable, stocks should be able to hold steady.

Here’s the bottom line…

The US economy is leading the global economy.  But stocks aren’t going anywhere until the European credit crisis is solved.

Position Updates

. . . . Vanguard Long Term Government Bond (VGLT) – Buy up to $74.15

VGLT is off to a nice start.  It reached a peak gain of 4% before the Fed, ECB, and the Bank of England stepped in last week.  Since then, the widening spread between US and German bonds and those of the rest Europe have eased a bit.  But the crisis in Europe is far from over.  And when it flares up again, spreads will begin to widen and VGLT will be off to the races again.  Buy VGLT up to $74.15.

. . . . Consumer Staples Select Sector SPDR Fund (XLP) – Hold

XLP has regained all of the losses from the August sell off.  And it’s on the verge of breaking out to a new all-time high.  The strong showing from the US consumer continues to push the sector higher.  And as long as the US economy continues to grow, the sky’s the limit.  Continue holding for bigger gains ahead.

. . . . iShares S&P N.A. Tech-Software Index Fund (IGV) – Buy up to $59.00

IGV is bumping up against resistance at the 200-day moving average.  So we may see IGV struggle to move higher in the short run.  But IGV is also in a solid uptrend off the August lows.  The competing support and resistance should get worked out over the next month. I think we’ll see IGV’s uptrend win out in the end.  Go ahead and pick up shares of IGV under $59 if you haven’t already.

. . . . SPDR S&P Semiconductor Fund (XSD) – Buy up to $49.00

XSD lost its bullish momentum earlier this month.  After peaking at an 8% gain, our semiconductor ETF fell back to test support at $42.  Unfortunately, this is just the type of volatility we have to live with as long as Europe’s financial crisis is around.  The good news is the support zone held and XSD is once again moving higher.  This looks like a great buying opportunity to me.  Go ahead and buy XSD up to $49.

. . . . SPDR S&P Retail Fund (XRT) – Hold

XRT had a volatile month.  Again… there’s nothing we can do about market volatility stemming from Europe.  Despite the ups and downs, I simply love retail stocks right here. It’s clear the 1.48 million non-farm jobs the US economy has added this year are giving consumers’ confidence to spend money.  That’s great news for retailers… Continue holding for bigger gains ahead.

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

XLU is at its best level since the credit crisis hit in 2008.  Slow and steady US economic growth is driving demand for electricity.  As a result, we’ve seen a wave of bullish earnings estimate revisions for utilities stocks.  If XLU can break above $35, it could hit our $40 price target in short order.  Continue holding for bigger gains ahead.

. . . . Market Vectors Gold Miners (GDX) – Hold

GDX is in no-man’s-land.  Right now, GDX’s chart is forming a symmetrical triangle.  This pattern usually develops in an indecisive market.  And indecision is a great way to sum up gold and gold mining stocks.  Investors seem confused about what role gold plays in the current environment.  But if Europe does start to crumble, I think gold and gold mining stocks will benefit.  Continue holding…

. . . . iShares FTSE NAREIT Residential Plus Capped Index Fund (REZ) – Hold

REZ is suffering from the same European market volatility as the rest of the stock market. If you look beyond the volatility, the fundamentals for REITs specializing in multi-family housing are fantastic.  Slow and steady job growth should boost household creation from the all time lows we’ve seen over the last few years.  And don’t forget about the entire legion of former homeowners who are forced to become renters because of foreclosure.  It all adds up to more demand for residential rentals.  Continue holding REZ for bigger gains ahead.

Action To Take

  • Move XSD to Buy up to $49.00
  • Move IGV to Buy up to $59.00


Category: SET Portfolio Updates

About the Author ()

Comments are closed.