SET Portfolio Update February 2012

| February 7, 2012

February 7, 2012

Dear Sector ETF Trader Reader,

2012 is off and running with a stellar January for the major stock indexes.  In fact, the S&P 500 gained 4.4% last month… its best monthly performance since October of last year.  It’s also the best January since 1997.

You’ve heard the saying, “As January goes, so goes the year”…

If you’re not aware, this saying is derived from an actual stock performance gauge.  Back in 1972, Yale Hirsch devised an indicator which tracks the S&P 500’s performance in January, as a forecast for the rest of the year.  It’s known as the January Barometer.

And the indicator has registered only seven major errors since 1950.  That translates into a roughly 90% accuracy rating!  So things are looking pretty good for the rest of 2012…

Now, if you simply can’t put your faith in a predictive forecasting tool, no problem.  We’re also seeing real fundamental data improvements.  And that’s something everyone can believe in.

For starters, the US economy is beginning to heat up…

Just last week, we saw data pointing to an improving US jobs market.  The unemployment rate fell to 8.3% and the economy added over 243,000 jobs.  That’s a great step forward for one of the toughest parts of the economy.

In addition, January brought about improvements in US durable goods orders.  The expectation was for growth of 2.0% and order demand actually ramped up to 3.0%.  And future orders are a great indicator of what’s to come.

Finally, Chinese, German, and British PMI numbers all came in stronger than expected.  And growth in global manufacturing is a very optimistic sign for the economy.

While things are looking bullish overall, we still have the Greek debt crisis yet to play out. And analysts are uncertain how much a messy Greek default will impact the global economy.  The whole situation remains a wild card.

If the Greeks were to somehow keep from defaulting, the markets will undoubtedly head higher from here.  But if things go awry… we can only guess it may not turn out very well.

Now onto the updates…

Position Updates

. . . . PowerShares Dynamic Food & Beverage (PBJ) – Hold

PBJ is climbing right out of the gate.  And the consumer staples sector remains strong right now.  In fact, four of PBJ’s five top holdings are trading near 52-week highs.  With global growth ramping up, there’s still more room to run in the sector.  Let’s hold PBJ for greater gains.

. . . . SPDR S&P Homebuilder Fund (XHB) – Sell

Since our last update, we’ve seen XHB simply skyrocket.  In fact, our trade is up a massive 25.8% so far!  While economic data for the housing sector remains mostly bullish, we’re going to recommend selling at this time.  The reason couldn’t be any simpler… it’s time to lock in a fat profit.  Congratulations!  Let’s take our 25% gain we’ve made over the past six weeks and book it.  Sell XHB for a quick double digit winner.

. . . . First Trust Biotechnology Fund (FBT) – Sell

Our biotech play, FBT, has given us a major win in virtually no time at all.  While there may be more upside potential in biotech this year, it’s very rare to turn a 38% profit in just six weeks.  And since our investment in biotech grew so fast, we’re going to lock in yet another big winner for the portfolio.  Cash in on your lightning-fast gain right now.  Sell FBT.

. . . . Vanguard Long Term Government Bond (VGLT) – Sell

While we bought VGLT for all the right reasons, the ETF is struggling to make any headway.  In fact, VGLT continues to slide.  We expected problems in Europe to drive investors into the safety of US bonds.  The opposite seems to be happening.  As investors continue to chase risk, this fund will do nothing but fall in value.  We’re going to sell now, near breakeven, and conserve capital for better opportunities.  Sell VGLT.

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

XLP has continued to climb nicely along with the entire stock market.  We still believe in the fundamentals behind consumer staples sectors.  But at this time, we’re going to sell the XLP.  You see, we’re selling this ETF for portfolio management purposes.  As you know, we’ve doubled our exposure to consumer staples sector with our latest pick, PBJ. And I believe PBJ has better upside than XLP at this time.  Let’s sell XLP near its 52-week high and claim a 6% profit in the process.  Sell XLP.

. . . . iShares S&P N.A. Tech-Software Index Fund (IGV) – Hold

IGV has now exploded through both its 50- and 200-day moving averages.  In fact, our trade on IGV is back in the black and up over 5%.  The best part is, there’s no sign this tech software ETF will slow down.  As a strong earnings season continues to roll on, expect IGV to test its 52-week high of $65.60.  Hold shares of IGV.

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

XSD has surged higher since mid-December.  In fact, the ETF tested support at $42 and has done nothing but climb ever since.  Better still, XSD has rallied right through its 50- and 200-day moving averages.  And that puts our trade up nearly 11%!  We’re looking at the onset of a major tech sector rally here so continue holding XSD for more gains.

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

XLU continues to trade near the top of its 52-week range.  And more importantly, the Utilities ETF remains in an uptrend.  We’re seeing a streak of bullish US economic data right now.  As such, demand for electricity is certain to climb.  In the process, earnings for utilities stocks will remain strong.  If XLU can climb back above its 52-week high of $36.27, we could hit our $40 price target soon after.  Continue holding XLU for bigger gains.

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

REZ is in the process of climbing off the charts.  In fact, our trade is up over 20% right now.  There’s no doubt it’s all due to the generosity of the Federal Reserve.  As I’m sure you’re aware, the Fed just guaranteed ultra low interest rates into late 2014.  And cheap money is always a huge incentive for real estate investment.  In addition, we’re seeing confirmation of job growth in the US.  And that will boost household creation from near all- time lows.  Continue holding REZ for even bigger gains.

Action To Take

  • Sell SPDR S&P Homebuilder Fund (XHB)
  • Sell First Trust Biotechnology Fund (FBT)
  • Sell Consumer Staples Select Sector SPDR Fund (XLP)
  • Sell Vanguard Long Term Government Bond (VGLT)
  • Move PowerShares Dynamic Food & Beverage (PBJ) from Buy to Hold.


Category: SET Portfolio Updates

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