SET Portfolio Update March 2013

March 5, 2013

Dear Sector ETF Trader Reader,

As I write this morning, the Dow is hitting new all-time highs.

It’s really amazing how far the market has come over the last four years.  And now the large cap index has erased all of the losses it sustained in the financial crisis.

This is obviously an important milestone… and it could be the trigger for many everyday Americans to return to the stock market.

Look, it’s no secret money has been flooding into stocks to start the year.  The fund flows into stock based ETFs and mutual funds paint a clear picture.

The flow of new capital into the market is fueling a strong rally in many of our ETFs.  It has also defied my expectations of a short-term pullback.  And now that the Dow has reached a record high, we might not see that pullback for some time.

You see, it’s funny how human psychology works… many people who were burned in the market crash of 2008 never returned to stocks.  They were too afraid to jump back in after they saw their wealth evaporate as real estate, commodity, stock, and even some fixed income prices plunge simultaneously.

Now the same people who have been too afraid to get back into stocks will hear the Dow is at a new high and think it’s time to get back in.

In short, the new high in the Dow will likely bring more people and more money into the market.  The rising tide of more money flowing into stocks will lift all boats.  But there will surely be some sectors that outperform others.

And that’s what I’m focused on – what sectors will outperform relative to the S&P 500 and other sectors.

Now onto the updates…

. . . . iShares Semiconductor ETF (SOXX) – Buy up to $60.25

SOXX is off to slow start.  But I’m expecting big things from the semiconductor industry this year.  It’s no secret that the industry is very cyclical.  So, a slow 2012 is likely the trough in demand for semiconductors.  As the demand cycles back up, it should fuel a strong performance in SOXX this year.  Grab your shares up $60.25.

. . . . iShares US Industrials ETF (IYJ) – Buy up to $81.00

IYJ is moving higher out of the gates.  And the recent ISM manufacturing data indicates the fundamentals are still improving.  The ISM index increased from 53.1 in January to 54.2 in February.  It was the best reading since June 2011 and above the consensus estimate. Put simply, this is a clear indication businesses are putting capital to work.  That’s great news for IYJ… Grab your shares up to $81.00.

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

The US housing market recovery is outpacing expectations.  Last month new homes sales soared 16% to a rate of 437,000 new homes per year.  It was the largest monthly percentage gain in 20 years and the fastest pace since July of 2008.  Continue holding ITB for further gains.

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

At long last, investor sentiment toward financials and bank stocks is turning bullish.  The trade is no longer about going from awful to a little less awful.  There seems to be truly bullish sentiment about financial stock.  It’s fueled a 12% rally in our banking ETF since recommending it in December.  And the expectations of a recovery in earnings in the coming quarters should fuel more upside in the weeks and months ahead.  I’m increasing our price target on KBE from $53 to $55.

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

The bullish fundamentals that are fueling our home builders ETF (ITB) higher are also sending shares of CUT higher as well.  Our timber ETF has soared 13% to $22.50 and is nearing our price target of $23.50.  But here’s the thing… I don’t want to pull the plug on this trade too soon.  Let’s increase our price target to $25.50.

. . . . First Trust NYSE Arca Biotech Index (FBT) – Hold

FBT has really taken off over the last week.  At a recent price of $52.00, we’re now up more than 14% on the trade.  Clearly the ‘risk on’ trade is funneling money into the volatile biotech industry.  We’ll look to exit the trade at our $55 price target.

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

Our shares of FDN are up 13% to $43.45.  The rally has been fueled by a strong performance of FDN’s largest holding Google (GOOG).  But those gains have been partially offset by weaker than expected performance of some of the smaller components.  I think the leadership from GOOG is a positive for the sector and will help lift the performance of the entire industry.  Continue holding for bigger gains…

. . . . iShares Dow Jones US Basic Materials (IYM) – Buy up to $70.00

IYM’s recent performance has been a little bumpy.  But the bottom line is basic materials stocks perform well when economic growth is accelerating.  And right now there’s no denying economic growth in the US is on the upswing.  If we get a hint of economic growth out of Europe or an indication of faster growth in China, IYM will be off to the races.  If you haven’t already bought IYM, use this pullback to pick up your shares up to $70.

Action To Take

• Move IYM to buy up to $70.00.
• Increase Price Target on FBT to $55.00.
• Increase Price Target on CUT to $25.50.

 

Category: SET Portfolio Updates