SET Portfolio Update June 2015

| June 3, 2015

portfolio update

It’s been more of the same thing we’ve seen over the past several months.

There’s a lack of conviction from buyers and sellers alike. The latest AAII Investor Sentiment Survey is a perfect example.

According to AAII, 27% of investors are bullish on stocks over the next six months, 25% are bearish on stocks over the next six months, and 48% of investors are neutral.

To give you some context, the long-term average for the study is 39% bullish, 30% bearish, and 31% neutral.

As you can see, there are a lot more people than normal that don’t have a strong feeling about the market. And for good reason…

Investors continue to be hyper-focused on the timing of the first Fed rate hike. But a transition to a healthier view of the global economy is needed.

As far as I’m concerned, the ‘bad news is good news because interest rates will be next to zero forever mentality’ has been played out.

I think the next big leg up for stocks will come when we see stabilizing of inflation rates around the world, solid economic growth, and slightly higher interest rates.

The rest of the world is ready for this too. But the economic data simply doesn’t support the conclusion that we’ve reached this critical juncture.

Until then, we’ll likely see more of the same performance and lack of conviction.

Think of it this way…

We know that low interest rates make stocks more attractive than bonds. This has helped propel stocks higher over the last several years.

So, until interest rates rise off these extreme levels, then there’s no reason for investors to sell stocks because there’s no better place for them to put their money.

But at the same time, the lack of growth and general lack of momentum for the economy doesn’t give investors reason to leverage up or pump money into aggressive strategies that will benefit from faster economic growth.

In other words, stocks are the best place to be right now because current monetary policies are supportive of the stock prices.

As we transition to a healthier period with rising interest rates, faster economic growth, and steady inflation, stocks will again be the best place to be but for different reasons.

There’s sure to be a dip or pullback as we transition from one period to the next, but this will also be a great buying opportunity.

In short, there’s a lot of noise out there. But the path ahead is bullish for stocks.

As expected in this type of market, all but one of our ETFs we’ve held for longer than a month are up. But nothing I’ve recommended over the last few months has shot to the upside either.

But there’s plenty of potential for big moves from these ETFs over the weeks ahead.

Now, onto the updates…

. . . . Vanguard Industrials ETF $VIS – Buy

VIS has been relatively flat since I recommended it. As expected, we’re seeing industrial production (IP) dip following an oil price crash. If history holds true, we should see IP bottom around three months after the bottom in oil prices. Crude oil hit its bottom on March 17th so IP should bottom sometime this month. As IP bounces back, VIS should move higher in a hurry. Buy VIS up to $111.00. The price target is $122.00.

. . . . Materials Select Sector SPDR $XLB – Buy

XLB has stagnated as the US Dollar has rebounded higher over the last few weeks. But the 8-month long uptrend is still firmly in place for XLB. This ETF should continue to follow this trend higher. Grab your shares below $51.50 if you haven’t already done so. The price target is $62.50.

. . . . PowerShares S&P SmallCap Consumer Discretionary Portfolio $PSCD – Buy

PSCD is our proxy for restaurants. This ETF is still below my $55.00 buy up to price. This ETF stands to benefit from increased consumer spending at bars and restaurants. The price target is $66.50.

. . . . iShares Medical Devices ETF $IHI – Hold

IHI is poised to tap into increased healthcare spending in emerging markets. These areas offer the most upside potential for strong growth. The price target is $140.00.

. . . . Guggenheim S&P Equal Weight Consumer Staples ETF $RHS – Sell

RHS has stagnated. And the acceleration of consumer spending, even as oil prices fell, is taking a toll on consumer related stocks. It’s time to take our small 2.2% profit off the table and look for better opportunities. Sell RHS now for a small gain.

. . . . Market Vectors Gaming ETF $BJK – Buy

BJK is forming a nice bottom. We have tremendous upside as casino and gaming stocks come out of this rut in the future. Buy BJK below $41.00. The price target is $55.00.

. . . . Market Vectors Semiconductor ETF $SMH – Hold

SMH surged to a new high of $60.13 as the chip sector enters into a period of consolidation. The industry is ripe for mega-mergers and acquisitions like the one between Broadcom $BRCM and Avago Technologies $AVGO. Intel $INTC is getting into the action with the purchase of Altera in a $16.7 billion deal.   This is the type of stuff that’s going to move the market while interest rates are low and it’s cheaper to manufacture higher profits through this type of action than it is to take the risk of investing in opportunities for growth. The price target is $71.00.

. . . . First Trust NASDAQ-100 Technology Sector Index Fund $QTEC – Hold

QTEC followed SMH to a new high of $45.59. It certainly appears that there are more mega-sized M&A deals to come in the tech sector. Continue holding. Our price target is $50.00.

. . . . Global X Social Media Index ETF $SOCL – Hold

SOCL is riding a wave of bullish momentum. This ETF is up 15% year-to-date. It broke out to a new high in April, and after a pullback to support of the uptrend, is on the verge of making another new high. SOCL is above our $20.00 buy up to price. Our price target is $23.00.

. . . . Financial Select Sector SPDR $XLF – Hold

XLF recently retested its 52-week high. But it failed to break out to new highs. The good news is the uptrend off the October lows is the dominant trend of the chart. If it can break out above $25, it should move towards my $29.00 price target in short order.

. . . . Guggenheim Solar $TAN – Sell

TAN’s wild ride continues as solar ETFs were hit with concerns about one the ETFs largest holdings, Hanergy.   Needless to say, niche ETFs that have large holdings of any stock are susceptible to these swings. The recent selloff doesn’t change my view of the industry. But the turmoil around Hanergy isn’t done yet. Let’s take our 24% gain off the table. We’ll look to get back into solar stocks after this situation has settled down. Sell TAN now for a gain of 24.4%.

. . . . PowerShares Dynamic Leisure and Entertainment $PEJ – Sell

PEJ is currently trading for $36.87. That’s a gain of 17.5%. Consumer stocks have been moving lower after consumer spending came in lower than expected in the first quarter. There’s no sign that consumer stocks are ready to move higher right now. Sell PEJ now for a 17.5% gain.

Action to Take

  • Sell PEJ for a gain of 17.5%
  • Sell TAN for a gain of 24.4%
  • Sell RHS for a gain of 2.2%

Category: SET Portfolio Updates

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