SET Portfolio Update February 2011

| February 1, 2011

February 1, 2011

Dear Sector ETF Trader Reader,

The Dow’s 2.7% advance in January was the best since 1997!  Clearly, US stocks are off to a great start this year…

What’s fueling the surging stock market?

In my mind, it’s really very simple.  It all starts with the Fed’s quantitative easing program. Simply stated… You can’t fight the Fed.

Right now the Fed is on a mission to re-inflate asset prices.  They want to create a “wealth effect” and keep inflation near their long-term target of 1.7% to 2%.

To that end, the Fed is pumping $600 billion in new cash into the system.  And all of that money has to go somewhere.  And right now it’s flowing into stocks, commodities, bonds, and so on…

So far the plan is working.  We’re seeing the “wealth effect” drive consumer spending and confidence higher than expected.  And despite surging commodity prices, inflation is still low.

The way I see it, the economy is picking up steam.  Now it’s up to businesses to take the baton and run with it.

The good news is businesses are well capitalized and flush with cash.  Now they just need to start spending it!  And I believe they will.

In fact, I don’t think they really have a choice at this point.  Productivity is already stretched to the breaking point.  And if they don’t begin spending soon, they risk losing market share to competitors.

The bottom line is the Fed’s QE2 will continue inflating asset prices for at least a few more months.  And if business spending ramps up over the next few quarters… Well, let’s just say I think we’ll see the Dow, S&P 500, and NASDAQ at new all-time highs sometime this year.

Now for the updates…

Position Updates

. . . . iShares FTSE NAREIT Residential Plus Capped Index Fund (REZ) – Buy up to $41

The Wall Street Journal published another article about the coming rent hikes last weekend.  That’s great news for REZ.  As I pointed out in the trade alert, higher rents will drive residential REITs profitability and earnings much higher.  REZ is closing in on our buy up to price.  So go ahead and grab REZ if you haven’t already.

. . . . Market Vectors Global Alternative Energy (GEX) – Buy up to $22

GEX is looking good.  It’s still trading in a consolidation pattern.  But probably not for much longer.  Strong fundamentals provide an ideal backdrop for GEX to make a break to the upside.  Go ahead and buy GEX up to $22 if you haven’t already.

. . . . iShares Dow Jones Industrials (IYJ) – Hold

IYJ has shot up 6% since our recommendation went out a few months ago.  And there’s still plenty of upside.  Industrial production continues to ramp up.  And to top it off, analyst estimates show industrial firm profits will rise nearly 35% over the next year!   Continue holding IYJ for further gains ahead.

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

MOO hit a peak gain of more than 11% already.  But this is only the beginning.  Agriculture is a booming market!  Grain prices are high and farm income is surging.  That means farmers from around the world will be spending money on new equipment.  And next planting season they’ll be spending more money than usual on seed and fertilizer.  That’s great for agribusiness stocks across the board.  Continue holding MOO for further gains ahead.

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

XLES continues racing to new heights.  We’re now up more than 27%!   The recent unrest in Egypt sparked fears of oil supply disruptions in the Middle East.  As a result, oil is back over $90 per barrel.  Small cap energy companies are getting a lot of investor attention lately.  That should lead XLES toward our $39 price target in short order. Continue holding XLES for further gains.

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

PLTM has made some wild swings the last few months.  But volatility aside, we’re still up better than 8%.  Industrial demand for platinum should remain strong as economic growth accelerates.  And any hint of inflation will only boost platinum’s value as precious metal. Any way you slice it, that’s good news for the platinum miners.  Continue holding PLTM for further gains.

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

IGV’s uptrend is going strong.  We hit a peak gain of over 16% so far.  And it should only get better from here.  Remember, companies are expected to spend more on software in 2011 than they did in 2010.  That’s great news for the entire sector… Continue holding IGV for the next leg higher.

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

KBE spent January drifting sideways in a consolidation pattern.  We’ll often see ETFs go through a consolidation period after a big move like KBE had in December.  Bank earnings were a bit underwhelming but overall the picture is clear.  Banks are rebuilding their balance sheets and are much healthier today than they were a year ago.  Hold tight for KBE’s next leg higher.

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

IYC hit a peak gain of 18%.  Then the markets took an overdue breather late last week. But the good news is… IYC is still in a solid uptrend.  And judging by the latest personal spending and income numbers, the American consumer is coming back stronger than many expected.  That’s great news for IYC… higher consumer spending means higher prices ahead for IYC.  Hold tight for further gains.

Action To Take

  • None at this time.


Category: SET Portfolio Updates

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