SET Portfolio Update July 2012

| July 3, 2012

July 5, 2012

Dear Sector ETF Trader Reader,

Happy Fourth of July!

It’s a slow holiday shortened week on Wall Street.  But there’s still plenty for us to dig into so let’s get started!

As I pointed out last month, the S&P 500 was due for a snapback rally after a horrible May and a miserable start to June.  And that’s exactly what’s happened.



As you can see, the S&P 500 bounced off the 200-day moving average (red line) in June. And the large cap index has shot up more than 8% over the last month.

Obviously, that’s good news for our ETFs.  And we took advantage of the upswing to sell some of our open positions a few weeks ago in the monthly issue.

And for good reason…

An 8% rally in the S&P from the June low is clearly welcome.  But don’t forget, there’s an extraordinary amount of uncertainty in the market right now.  And uncertainty can wreak havoc on stocks in the short term.

In the current market, we’ll capture gains on the upswings.  And we’ll also use the downswings as buying opportunities.  But you can’t get too greedy because the market can and will turn on a dime.

On a more positive note, it’s important to keep in mind that uncertainty doesn’t last forever.

Just look at healthcare stocks over the last few weeks.  The Health Care Select Sector SPDR (XLV) has broken out to a new all-time high in the last week.


The Supreme Court issued their decision on Obamacare.  And it’s taken away some of the uncertainty from investing in healthcare stocks.

It’s that simple.

When uncertainty leaves the market, it’s good for stocks.  And at some point, the uncertainty about the EuroZone, the Fiscal Cliff in the US, and Chinese growth will ease. And when that time comes, we’ll see the markets soar higher.

Until then, we’ll take what the market gives us.

Now onto the updates…

Position Updates

. . . . ALPS Alerian MLP ETF (AMLP) – Buy up to $16.00

Well, it didn’t take long for our newest ETF to shoot past our $16 buy up to price.  Clearly AMLP was oversold at the levels we bought it.  But we’ll likely see AMLP pull back a bit before continuing toward our price target.  Don’t forget, we’d like to own this ETF for a while so we can capture some of the payouts.  Feel free to buy AMLP under $16.

. . . . Guggenheim Airline ETF (FAA) – Buy up to $31.25

FAA reached a peak gain of 3.6%.  And it’s in a solid but turbulent uptrend.  Right now, investors are weighing the positive impact of lower oil prices against the negative impact of slowing economic growth.  What’s more, some airlines may not reap the benefits of falling oil prices because they hedged their exposure to rising oil prices at much higher prices.  And those hedges are now working against them.  Nevertheless, FAA has the potential to soar in this uncertain economy.  Buy FAA up to $31.25.

. . . . First Trust ISE Revere Natural Gas Index Fund (FCG) – Buy up to $16.50

Natural gas prices continue their rebound from 10-year lows.  Prices are now pushing $2.90 per MMBtu.  That’s up from less than $2.00 per MMBtu just a few months ago. Clearly the slowdown in natural gas production in the US is decreasing supply and prices are finally moving higher.  FCG cruised past our $16.50 buy up to price to a peak gain of more than 8%.  But we could see a pullback in the short term.  There’s huge upside in FCG so make sure to buy your shares of FCG before it sails past $16.50 for good.

. . . . PowerShares S&P SmallCap Health Care (PSCH) – Hold

Healthcare stocks have had a great run after the Supreme Court finally made a decision on Obamacare.  The highest court in the land upheld the law.  And more importantly for investors, the ruling takes a lot of the uncertainty out of investing in healthcare stocks. As a result, PSCH soared past our $34.25 buy up to price.  Continue holding PSCH for bigger gains.

. . . . SPDR S&P Homebuilder ETF (XHB) – Buy up to $22.25

Homebuilder stocks have come roaring back over the last few weeks.  New home sales surprised everyone with 369,000 sales.  That easily topped estimates for 350,000 new homes sales.  And it was the best month for homebuilders since April 2010.  What’s more, the number of distressed homes for sale is falling.  That’s good news for homebuilders who have been competing against an oversupply of distressed homes on the market.  Buy XHB up to $22.25.

. . . . SPDR S&P Retail (XRT) – Buy up to $62.50

XRT has snapped back to lead the markets higher over the last few weeks.  The American consumer has so far been immune to the turmoil and troubles in Europe and around the world.  And we should see retail stocks continue to be one of the strongest areas of the market going forward.  Continue holding XRT.

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

Software stocks are bouncing back.  But they still have a long way to go to get back to their recent highs.  Clearly the negative outlook on economic growth has taken a significant toll on tech stocks.  At this price, IGV is pricing in a huge slowdown in business IT spending.  Yet analysts continue to become more negative every week.  Amazingly, they’ve been downgrading earnings estimates non-stop for more than two months now.  At this point, analysts have likely become too negative.  And we’ll likely see some analysts begin to increase their earnings estimates.  And that could lead to a nice rally in tech stocks across the board.  Continue holding IGV.

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

Our residential REIT ETF hit a new high of $48.90 this week.  And we’ll likely see REZ hit our $50 price target soon.  Look, real estate property values are improving, and more importantly, strong demand for rentals is driving apartment rent higher across the country. That’s a formula for better REIT profitability.  Continue holding REZ for bigger gains.

Action To Take

  • None at this time.


Category: SET Portfolio Updates

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