SET Portfolio Update January 2011

January 4, 2011

Dear Sector ETF Trader Reader,

Happy New Year!

2010 finished on a strong note and 2011 is off to a fast start…

What more could we ask for?

How about stronger than expected economic growth in 2011?

Well, the good news is, that’s exactly what the leading economic indicators are pointing to!

Right now the Economic Cycle Research Institute’s Weekly Leading Index (WLI) is showing economic growth is accelerating.  It means GDP should be growing faster in six months than it is today.

In short, the sole purpose of the WLI is to spot changes in the business cycle… before they happen.  The WLI measures a bunch of different economic indicators.  It takes a wealth of data and condenses it down into an easy to read WLI level and WLI growth rate.

Remember, from April through August of 2010, the WLI was showing the economy was slowing.  As a result, stocks went through their biggest correction since the bull market began in March of 2009.

The index fell to a point where the economy was in danger of entering into a double dip recession.  But in late August and early September, everything changed.

At that time, the trend in the WLI was changing.  First it stabilized.  Then it began accelerating to the upside.  And it hasn’t slowed down since!

No doubt about it, we’re still in the early stages of the recovery.  And we’re a long way from reaching another peak in the business cycle or a market top.

As a result, stocks turned in an impressive performance to close out 2010.  And as long as the WLI continues to accelerate, so should the economy.  And more importantly, stocks and ETFs should continue to post sizeable gains.

In fact, I think the rising tide will lift all boats.  In other words, all sectors of the economy will enjoy gains in 2011.  But that doesn’t mean those gains will be spread evenly across every sector.  Some will outperform while others will underperform.

As always, I’ll do my best to get you into the hottest sectors posting the biggest gains!

Now for the updates…

Position Updates

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

IYJ is off to a fast start.  Remember, industrial companies are highly cyclical.  They tend to outperform other sectors of the economy when growth is accelerating.  And right now all signs point to economic growth accelerating over the next six months.  That should put IYJ in the sweet spot to rack up big gains in the weeks and months ahead.  We’ve already crossed over our buy up to price so I’m moving IYJ to hold.  Sit tight for bigger gains ahead.

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

MOO is up more than 5% since we recommended it last month.  As a result, it’s already moved beyond our buy price.  So I’m moving MOO to hold.  But there’s still plenty of room for MOO to run.  Here’s why… Agriculture is in a boom 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 20%!  Oil is now over $90 per barrel and could reach $100 per barrel in short order.  Small cap energy stocks continue to outperform their large cap brethren.  And we’re starting to see M&A activity heat up.  I wouldn’t be surprised to see some of the stocks in XLES become the next takeover targets of the major oil and gas companies.  Continue holding XLES for further gains.

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

PLTM continues moving to the upside.  We’re now up more than 17% in just a few months. Platinum miners are benefiting from rising prices for the white metal.  Demand for platinum for use in catalytic converters is strong due to tougher emissions standards on trucks and agricultural equipment.  Continue holding PLTM for further gains.

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

IGV’s uptrend continues unabated.  We’re now up more than 13.5% since our recommendation.  And it should only get better from here.  According to a recent survey, companies are planning on spending 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 is shaking off a down 2010.  Financial stocks and banks in particular appear to be poised to make up for their poor performance.  We’re now up more than 16%.  I think the improving economy will lead to better than expected earnings for banks across the board. In light of the improving conditions, let’s go ahead and increase our price target on KBE from $27 to $30.

. . . . First Trust NYSE Arca Biotechnology Index Fund (FBT) – Hold

FBT shot up again thanks to InterMune (ITMN).  The stock more than doubled when their drug, Esbriet, was approved for distribution in Europe.  We’re now up around 22% and rapidly closing in on our price target.  Keep an eye on FBT and be prepared to sell when it reaches $40.

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

IYC’s strong uptrend continues.  We’re now up more than 16%.  Improving consumer sentiment and strong same store sales have consumer service stocks up across the board. And it should only get better thanks to the extension of unemployment benefits and the “Bush Era” tax cuts.  Hold tight for further gains.

. . . . iShares Dow Jones U.S. Real Estate Index Fund (IYR) – Hold

IYR and REITs continue to perform well.  The 3.4% yield on IYR remains attractive compared to anything else available in the market.  And the accelerating economy should lead to higher rents and lower vacancy rates in 2011.  The bottom line is REITs should post stronger earnings in 2011 than they did in 2010.  Hold tight for further gains ahead.

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

XSD continues to ride the wave of improving economic conditions.  Chip sales topped $26 billion in November, a 14% increase from a year earlier.  The real growth in 2011 will come from emerging markets.  Consumer demand for PCs and smart phones from the emerging middle class will drive sales to new heights in 2011.  Hold tight for further gains ahead.

Action To Take

• Move iShares Dow Jones Industrials (IYJ) from Buy to Hold
• Move Market Vectors Agribusiness (MOO) from Buy to Hold
• Increase Price Target on SPDR KBW Bank ETF (KBE) from $27 to $30

 

Category: SET Portfolio Updates