SET Portfolio Update March 2012

March 6, 2012

Dear Sector ETF Trader Reader,

This rally doesn’t want to end, plain and simple.

Since the start of 2012, most major averages are up anywhere from 5% to 7%.  And outside of a day of selling here or there, the rally remains in tact.  The question is, can it last?

Based on the recent market action, I say it can.  Here’s why…

Most down days we’re seeing right now are few and far between.  And for many of them, the early AM selloff is being bought by the day’s end.  Some days, the averages only come back up to even or slightly down.

But other days, the selloff is being bought all the way back up and keeps the rally intact. That’s important to note.  Price action is a big key to keep the momentum rolling…

Taking a step back and looking at the year so far, I’m not at all concerned with today’s triple digit loss.  We’ve been due for at least one big down day.  In fact, I’m sure many investors will see this pullback as an opportunity to finally get off the sidelines.

As it is, total money market investments have been falling for weeks.  According to ICI, last week’s total money market fund deposits hit a low for the year… $2.65 trillion.  I’d bet we see next week’s number even lower.

What’s more, we’re seeing fundamental data continue to improve globally.

Last week, German CPI numbers for February beat expectations at 2.5%.  US Core Personal Consumption was also up, showing a 1.3% improvement.  That helped support the big headline US Real GDP for Q4… coming in at 3.0%.

The list goes on and on… including Chinese manufacturing data.

Chinese PMI beat expectations for February, hitting 51.0 versus the 50.8 expected reading.  And Chinese manufacturing data is a strong indicator of global economic growth.

As you can see, there are a number of high points happening globally.  While every single economic data point isn’t improving, they’re not trending lower either.  And that’s building support for the recent rally… and a strong case for the rally to continue from here.

Now onto the updates…

Position Updates

. . . . Industrials Select Sector SPDR ETF (XLI) – Buy

We just rolled this trade out last month, and as of yesterday’s close, we’re down just 1%. Since the sector rotation model points to industrials leading higher, XLI will move in tandem with the markets.  And the rally looks to continue from here.  Buy XLI up to $38.25.

. . . . SPDR S&P Insurance ETF (KIE) – Buy

Our recent insurance ETF trade has been trending higher.  However, in the past few days, we’re seeing a pullback in most financials.  As a result, KIE closed yesterday back down where we bought in.  This looks to be a short-term setback for our trade, as the insurance industry fundamentals remain strong.  Buy KIE up to $42.00.

. . . . PowerShares Dynamic Food & Beverage (PBJ) – Hold

PBJ remains a steady performer, posting a 3% gain for our trade.  The consumer staples sector traditionally sells off when investors add risk to their portfolio.  However, everyone still needs to eat and drink.  The fundamentals remain strong for PBJ.  Even with the recent pullback, hold PBJ for greater gains.

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

Just last week, IGV surged to within a nickel of $64.  Since then, we’ve seen some consolidation in the ETF.  During all healthy rallies, you look for some consolidation.  I see no fundamental changes to the Software ETF.  In fact, recent improvements in unemployment point to a greater demand for software to meet staffing needs.  Hold shares of IGV.

. . . . SPDR S&P Semiconductor Fund (XSD) – Sell

XSD has lost value steadily since it hit a 7-month high on February 17th… $54.23.  XSD has now fallen through both its 50-day ($49.42) and 200-day ($51.76) moving averages in just two short weeks.  With our trade still in the black, I’m suggesting we sell XSD.  The semiconductor industry can be quite fickle at times.  And now is proving to be one of them.  To continue profiting in tech, we’re keeping IGV, but selling XSD.

. . . . Utilities Select Sector SPDR (XLU) – Hold

XLU has been trading in a tight range lately.  The ETF has been bouncing between $34.75 and $35.25 for over two weeks now.  Interestingly, the fund could have been sold off during the recent risk rally.  However, that didn’t’ happen.  As the streak of bullish US economic data continues, demand for electricity is destined to climb.  If XLU can trade above its 52-week high of $36.27, the ETF could really start to rally.  Continue holding XLU for more gains.

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

REZ has pulled back some from its recent 52-week highs, losing around 4.5%.  Some of the fall can be contributed to the drop in construction spending in January.  It was the first such drop in six months.  However, the longer-term trend on the housing market looks great.  Sales are up, housing starts are growing, and banks are relaxing their stance with delinquent borrowers.  All of the data points to a good year for real estate in 2012. Continue holding REZ for a move higher.

Action To Take

• Sell SPDR S&P Semiconductor Fund (XSD)

 

Category: SET Portfolio Updates