SET Portfolio Update January 2010

| January 5, 2010

January 5, 2010

Happy New Year!

Sector ETF Trader’s inaugural year started with a bang.  Here’s a quick recap of our recommendations in 2009.

I recommended eighteen ETFs over the course of the year.  We’ve closed out six of those positions for an average gain of 31%!

The twelve open positions have existing gains of as much as 42%!  So we’re starting 2010 off on the right foot.

Remember, in 2009 the S&P 500 was only up 23%… so we’re outperforming the market!

2009 comes to an end in the midst of a Santa Claus rally.  The market’s rocketing higher on the strength in technology, basic materials, and industrials.

The semiconductor companies set the pace for tech stocks.  They posted gains of better than 16% in December.  The chip makers’ impressive rally sent our SPDR S&P Semiconductor ETF (XSD) through our price target for a gain of 55%!

The gains are being fueled by consistently improving economic indicators.  It seems like the economic outlook for 2010 becomes stronger every day.

Any way you look at it, the economic recovery’s become more established.  It’s finally time for the employment situation to be front and center.  This is a big change.  So far I haven’t given unemployment numbers much thought.  Employment numbers are a lagging indicator of economic improvement.

So anyone who’s been on the “this recovery isn’t real because the unemployment rate is rising” train is now correct.  We’re moving into a phase of recovery where jobs are key to continued improvement.

And right now the employment numbers are telling me we should see improvement across the board in 2010.  I’ll be keeping a close eye on them for any changes.

As long as the numbers keep improving, the sectors sensitive to consumer spending have the biggest upside.  It’s all about how much money consumers are spending.

With that in mind… I wouldn’t be surprised to see some industries like gambling and homebuilders join the tech sector as market leaders soon.

Now for the updates…

Position Updates

. . . . iShares Dow Jones Transportation Average Index Fund (IYT) – Buy up to $78.00

Transports are a new trade we sent out a few weeks ago.  So far IYT is chopping around between $74 and $76.  IYT could continue to consolidate at this level before the next leg higher.  But make no mistake, the stronger than expected economic recovery will send transportation stocks and IYT higher.  Go ahead and buy ITY up to $78.

. . . . Utilities Select Sector SPDR Fund (XLU) – Buy up to $33.00

XLU has pulled back a little since we recommended it a few weeks ago.  When we sent our recommendation we said, “An ideal entry into XLU would be on a pullback near the breakout around $30.50.”  Well it looks like XLU has found support at the $31 level.  If you’re trying to time your entry on the pullback, it’s looking like now is the time to buy.

. . . . Market Vectors Junior Gold Miners (GDXJ) – Buy up to $28.00

Gold and the US Dollar continue to trade in opposite directions.  And the junior gold miners ETF is a leveraged play on higher gold prices.  So not surprisingly, we have seen quite a bit of volatility from GDXJ.  Regardless of the short term volatility, the threat of inflation and large government deficits will continue to push more investors into gold.  The new demand for gold by retail investors should push gold to new highs… even if the US Dollar rallies from here.  Go ahead and buy GDXJ up to $28.

. . . . SPDR S&P Oil & Gas Exploration and Production ETF (XOP) – Buy up to $45.00

Oil prices have staged a rally from $70 to $80 per barrel over the last few weeks.  The recent rally in the oil and gas sector was sparked by Exxon Mobil’s (XOM) announced acquisition of XTO Energy (XTO) on December 14th.  (XTO Energy’s one of XOP’s holdings.)  Exxon’s decision to buy up natural gas reserves when prices are near all-time lows and inventories are at all-time highs speaks volumes.  Clearly they are expecting prices to move higher from here.  Don’t be surprised to see additional M&A activity keep shares of XOP moving higher.

. . . . SPDR S&P Homebuilders ETF (XHB) – Buy up to $16.25

The homebuilders rallied to end 2009 on a strong note.  The rally sent XHB through the short term downtrend in mid-December.  Now both the dominant short and long term trends are up.  It’s looking like XHB is setting up for a rally to test the September highs. With a possible breakout to a new high looming after that.  If you haven’t got into XHB already, go ahead and buy up to $16.25.

. . . . Market Vectors Gaming ETF (BJK) – Buy up to $27.00

BJK has pulled back to support at $23.50.  It’s consolidating in a very tight range over the last few weeks.  Look for BJK to make a quick move higher from here.  If BJK can break through the short term down trend, we should see a major rally back to test the previous high around $27.

. . . . SPDR S&P Retail ETF (XRT) – Sell

The retail industry is ending 2009 on a positive note.  Rising consumer confidence and improving retail sales are pointing toward continued improvement in 2010.  The recent success hasn’t been enough to get XRT over the hump.  XRT’s back near its highs from October but it hasn’t been able to break out to new ones.  It tells me investors have priced in the current conditions for some time.

I wouldn’t be surprised to see some earnings disappointments this quarter.  Sales at some retailer could be off by as much as 2% to 3% thanks to blizzard conditions across large portions of the US during the holiday shopping season.  We’re going to go ahead and sell SPDR S&P Retail ETF (XRT) to lock in a 10% profit now.

. . . . Vanguard Industrials ETF (VIS) – Hold

Chinese manufacturing expansion is fueling growth expectations.  This is a positive sign for the large multinational industrial firms.  Strong growth in China is fueling growth in Asia (and the rest of the world for that matter).  That’s great news for VIS.

Recently VIS ran into resistance around $52.50.  It’s traded sideways near this level for the last month and a half.  Now the long term uptrend has caught up to the current price. We should see a breakout one way or the other as these two trends converge.  The odds favor the longer term uptrend holding up so another leg higher could be just around the corner.

. . . . iShares S&P North American Technology – Software Index Fund (IGV) – Hold

The relative strength we saw last month in software companies carried over to this month.  And as we see time and time again, the sectors showing relative strength make the biggest gains when the market rallies.

IGV made an impressive move higher over the last few weeks.  We’re now sitting on a gain of 20%!  I wouldn’t be surprised to see continued strength in tech stocks push IGV to our price target in short order.

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

MOO broke through resistance at around $42 last month and quickly pushed toward $45. However, the $45 level has proven to be an area of considerable resistance.  Look for MOO to resume its upward momentum after it puts in a base at current levels.  The big picture trend is for improving conditions in the Ag business industry.  This will fuel higher revenue and profits as the economy improves.  Hold tight for now.

. . . . Energy Select Sector SPDR Fund (XLE) – Hold

XLE’s been on a wild ride this month.  First it broke support of the uptrend early on in the month.  Then as oil prices climbed from $70 toward $80 per barrel, XLE rallied to break through resistance of its short term downtrend.  The charts are telling me we’re looking at the beginning of a new uptrend.  Hold tight as XLE makes another run at our price target.

. . . . iShares S&P N. American Tech – Multimedia Networking Index Fund (IGN) – Hold

IGN snapped out of its short term downtrend as the entire tech industry took off.  Look for IGN to head toward the September highs quickly.  A close above the previous high around $28 should send IGN toward our price target in short order.  Hold tight for the next leg higher.

Action To Take

  • Sell SPDR S&P Retail ETF (XRT) to lock in a 10% profit now!

FYI… We adjusted a number of our open positions for dividends this month.

In case you missed it… we sold two of our open positions when they hit our price target in December.  Go ahead and lock in your gains if you haven’t already.

  • SPDR S&P Semiconductor ETF (XSD) was sold for a 55% gain!
  • SPDR S&P Metals and Mining ETF (XME) was sold for a 31% gain!


Category: SET Portfolio Updates

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