SET Portfolio Update February 2013

| February 5, 2013

February 5, 2013

Dear Sector ETF Trader Reader,

Stocks have shot out of the gate to start the year.  The S&P 500 is up more than 3% to around 1,500 and Dow has gained more than 4% to around 14,000 in about a month.

There’s no doubt about it, those are impressive gains for the large cap indices.

In fact, the rally has pushed the Dow and S&P to 5-year highs.  And they’re on the verge of breaking out to new all-time highs.

But here’s the thing…

They haven’t broken out to new highs.  And from a technical analysis point of view, these previous highs are resistance levels.  They’re a big hurdle for stocks to overcome.

What’s more, 1,500 on the S&P and 14,000 on the Dow are psychologically important levels.  They’re nice round numbers… and for some reason they always seem to trigger some sort of consolidation or pullback.

In short, the combination of multiple layers of technical resistance could limit further stock gains in the weeks ahead.

But don’t worry… the short term technical headwinds won’t dominate the markets for long. It won’t be long until they give way to the strong fundamentals in the global economy.

You see, the pace of economic growth hit bottom in the 4th quarter.  And it’s already on the upswing again.  More importantly, leading economic indicators show the expansion is picking up momentum.

Put simply, that’s great news for cyclical sectors.  These sectors are ultra sensitive to an upswing in economic activity.  And ETFs tied to cyclical sectors will reap the most upside from the economic expansion in the months ahead.

Now onto the updates…

. . . . iShares DJ US Home Construction Index Fund (ITB) – Buy up to $23.00

ITB got off to a great start; it surged more than 8% in days following our recommendation.  However, homebuilder stocks have taken a step back over the last few days.  Some analysts are getting worried about the stretched valuations of many homebuilder stocks.  They could be right in the very short term… but I think homebuilders still have tremendous upside in 2013.  If you haven’t already, grab your shares of ITB up to $23.00.

. . . . SPDR S&P Bank ETF (KBE) – Hold

KBE has made a nice run since breaking out above $24.50 to start the year.  We’re currently up about 8%.  And bank stocks should continue moving higher as economic growth accelerates.  Continue holding KBE…

. . . . Guggenheim Timber ETF (CUT) – Hold

CUT reached a gain of more than 10.5% before pulling back a bit lately.  But our total return including dividend is still more than 8.5%.  At this point, I don’t see anything holding timber stocks from racing back to their 2011 highs.  Continue holding CUT for further gains ahead.

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

XLP has made a nice recovery since we recommended it back in November.  In less than three months, we’re up nearly 10% on this defensive ETF.  Let’s go ahead and lock in these profits.  Sell XLP now.  Congratulations on a successful trade!

. . . . First Trust NYSE Arca Biotech Index (FBT) – Hold

FBT is another ETF on the upswing to start the year.  At a recent price of $49.53, it’s now up nearly 10% from where we recommended it in October.  But this biotech bull market is far from over.  Continue holding FBT for bigger gains.

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

REZ made a run at the 52-week high but it failed to break out to a new high.  Now it’s pulling back quickly.  I think we should take our total gain of nearly 6% and look for better opportunities.  Sell REZ now.

. . . . First Trust Internet Index Fund (FDN) – Hold

There’s no denying the tremendous shift in retail toward ecommerce and away from brick and mortar stores.  And FDN is riding the wave of the momentum in this industry.  The recent high of $43.47 marked a 13% increase from where we recommended it back in September.  But this is only the tip of the iceberg… The expansion of the mobile internet and the coming windfall of cash for the internet companies who capture the mobile market are just starting.  Continue holding FDN…

. . . . iShares Dow Jones US Basic Materials (IYM) – Hold

Basic materials stocks perform well when economic growth begins to accelerate.  So it’s no surprise to see IYM hit a recent high of $72.86.  But we’re just scratching the surface of IYM’s potential.  I’m expecting accelerating growth in the US and China to fuel a massive surge in basic materials stocks in the weeks and months ahead.  Continue holding IYM for further gains.

. . . . SPDR S&P Oil & Gas Equipment & Services (XES) – Hold

The recent uptick in economic growth has fueled a surge in crude oil prices.  WTIC black gold has surged from the mid-$80s per barrel at the end of 2012 to around $98 per barrel today.  The uptick in crude prices bodes well for oil service companies.  As a result, XES surged to a recent high of over $39.  That’s a 14% pop from where we bought it last August.  I think we could see XES run into resistance around $40 so keep an eye on it as it approaches our $40 price target.

. . . . iShares Dow Jones US Pharmaceuticals (IHE) – Sell

Pharmaceutical stocks are having a ho-hum year.  But there’s no denying they’re in a long term uptrend.  Here’s the thing… I think IHE will continue moving higher from here.  But I also think the gains will lag behind more cyclical sectors.  Let’s grab our total gain of 5.6% on IHE and stay focused on trades with more upside in this environment.  Sell IHE now.

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

MOO’s impressive run sent it through our $56 price target a few weeks ago.  That’s our cue to take profits!  Congratulations to everyone on a smashing 16% gain in about six months!

. . . . ALPS Alerian MLP ETF (AMLP) – Sell

AMLP surged past our $17.25 price target this week.  Go ahead and sell AMLP for total gains of 14.5%.  Congratulations on a great trade!

Action To Take

  • Sell AMLP, MOO, IHE, REZ, and XLP.


Category: SET Portfolio Updates

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