SET Portfolio Update June 2013

Dear Sector ETF Trader Reader,

It’s been another solid month for the stock market.  In fact, eight of our open trades hit new highs since the last issue came out just two weeks ago.

But it hasn’t been all sunshine and teddy bears for investors…

Fed Chairman Ben Bernanke knocked the wind out of the bull market’s sails on May 22nd. That’s the day he hinted the Fed could begin tapering off their asset purchases sooner than expected.

Since then, we’ve seen interest rates rebound a bit from record lows and red hot dividend paying stocks have given up some of their gains.  And to make matters worse, the S&P 500 hasn’t hit a new all-time since then… oh, the horror!

Look, don’t get too excited about the potential for tapering.  The S&P 500 was up 15.4% year-to-date through the end May.  That pace is simply unsustainable.  And Bernanke knew it.  He made the comments about the potential tapering off of QE because he wanted to cool off the stock market.

And it worked!

The S&P has pulled back since he made those statements.  It looks like the S&P will test a dual layer of technical support created by the 50-day moving average and the six month uptrend connecting the previous lows.

But that’s a good thing…

Don’t forget, pullbacks and corrections are part of a healthy stock market.  It’s a stock market that goes virtually straight up for six months without taking a breather that worries me!

The pullback over the last few weeks has been controlled and orderly.  And judging by the chart of the S&P 500, it’s likely to continue for a little while longer.  But it’s likely just a breather before the market makes another move higher.

Now onto the updates…

. . . . Health Care Select Sector SPDR (XLV) – Buy up to $50.00

XLV came out of the gates quickly.  It flirted with our $50.00 buy up to price in the days after we recommended it but it has pulled back a bit over the last few days.  If you haven’t already done so, grab your shares of XLV while they’re under $50.

. . . . Morgan Stanly Cushing MLP High Income Index ETN (MLPY) – Buy up to $18.50

MLPY and other interest rate sensitive investments have had a bit of a bumpy ride lately. But this income producing gravy train is far from over.  Grab your shares up to $18.50.

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

XES hit a new high of $41.96 before pulling back to around $40.00.  The onshore oil and gas boom in the US hasn’t translated into a booming business for oil services companies. There are just too many oil service providers and not enough work.  The oversupply has kept a lid on margins and profitability.  But a revival in global economic growth could spark a big surge in this undervalued ETF.  Continue holding…

. . . . iShares Semiconductor ETF (SOXX) – Hold

SOXX has been one of the better performing ETFs over the last few weeks.  Its recent high of $64.76 is an 11.5% increase from where we recommend it a few months ago.  The semiconductor industry is getting a boost from tremendous global growth in smartphone and tablet sales.  It’s more than offsetting any pullback from dwindling PC sales.  And it will likely fuel a big surge in industry profits in the second half of the year.  Continue holding…

. . . . iShares US Industrials ETF (IYJ) – Hold

IYJ had a great run from mid-April to mid-May.  The rotation from defensive to cyclical stocks seemed to be picking up steam.  But the Fed’s tapering message combined with a weaker than expected ISM manufacturing report have stopped the advance dead in its tracks.  But this should only be a temporary setback.  Continue holding IYJ for further gains.

. . . . iShares DJ US Home Construction Index Fund (ITB) – Hold

ITB has pulled back from the recent highs after some weaker than expected economic data.  But the most important driver of new homes sales is still strong… consumer sentiment is at its highest level since 2007.  If consumers feel secure about their finances, then they’re more likely to buy a home… and that bodes well for more new home sales.

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

KBE has been on a roll as investor sentiment toward banks improves.  The recent rise in longer term interest rates is a huge positive for the banking sector.  It’s not difficult, if they can borrower cheap and lend at higher rates, their margins should improve.  Continue holding for more gains…

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

CUT has fallen back from its highs as the price of timber has fallen 20% since April.  But don’t be fooled, it’s nothing to be worried about.  Investors bid up the price of timber after Hurricane Sandy.  That temporary bubble in lumber prices is over.  But the underlying improvement in homebuilding isn’t going away.  And as the pace of construction accelerates, it will fuel another surge in timber prices and CUT.

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

FDN is benefiting from a nice run from it largest holding – Google (GOOG).  GOOG represents about 10% of FDN’s holdings.  It’s up 22% so far this year and that’s after a 6% correction from an all-time high of $920.60.  This is one ETF that should really benefit from a rotation from defensive into cyclical stocks.  Continue holding for bigger gains.

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

IYM is another cyclical ETF that stands to benefit from a rotation out of defensive stocks and into ones that are more sensitive to improvements in the economy.  We’re currently up around 10% from where we recommended buying it.  Continue holding for more upside…

Action To Take

• None at this time.