SET Portfolio Update March 2014

March 4, 2014

It’s been quite a month since our last portfolio update.

At the time, stocks were in the midst of a dramatic correction.  Investor sentiment had swung to extreme levels of fear and a bearish outlook for stocks was the prevailing attitude.

Then with little or no warning, the stock market selloff stopped, investor sentiment turned bullish, and stocks quickly rebounded… this is often the case when fear is driving a market selloff.

These gains have been furthered by a boat load of better than expected economic data. Just last week there was better than expected data on housing prices, new home sales, durable goods, Chicago PMI, University of Michigan Confidence, and a pickup in bank lending. Needless to say, this is the type of thing that drives stocks higher.

In fact, the S&P 500 has recouped all of its losses and even finished the month by reaching a new 52-week high of 1,862.

Now the bullish, ‘risk-on’ outlook is in jeopardy due the threat of war between Russia and Ukraine.  And for good reason, anytime there is a threat of war, it makes investing in stocks riskier.

Investors’ natural aversion to risk will force some people and institutions out of the market.  It’s why we had a reversal of fortunes for the stocks, sectors, and ETFs on Friday after the war risk emerged.  Not surprisingly, the best performing sectors over the last month were hit the hardest in the selloff.

Here’s the thing…

The latest data is clearly pointing to an end to the soft economic patch we saw over the last few months.  So there’s a solid foundation for stocks to build on.

Don’t let the volatility caused by the dispute between Ukraine and Russian send you running for cover.  The uncertainty it’s causing will pass.

And if the economy stays on its current trajectory, we should see the S&P 500 and many of our ETFs surge to new highs in short order.

Now, onto the updates…

. . . . Financial Select Sector SPDR (XLF) – Buy up to $22.25

Financial stocks have been building momentum over the last month.  The threat of war between Russia and Ukraine could derail the bullish momentum… but only temporarily.  The financials have tremendous upside in an improving economy as interest rates start to rise. Grab your shares of XLF up to $22.25.

. . . . Guggenheim Solar (TAN) – Hold

TAN has been surging higher over the last several months.  At the recent high, TAN was up 38.7% from where we recommended buying it.  Simply put, this trade is a juggernaut with the potential for a huge return in a short period of time.  Continue holding.

. . . . First Trust Consumer Staples AlphaDEX Fund (FXG) – Hold

FXG is tracking up and to the right in a clearly defined price channel.  On Friday, it reached a new high of $36.57.  This ‘smart beta’ has a unique construction that should help it outperform other consumer staples ETFs.  FXG is now above our $36.00 buy up to price so I’m moving it to hold.

. . . . PowerShares Dynamic Leisure and Entertainment (PEJ) – Hold

PEJ is on the upswing now that the economic data is showing improvement.  The cold weather related slowdown appears to be nothing more than a blip on the radar.  In fact, PEJ just hit a new high of $35.39 on Friday.  The portfolio of stocks in this smart beta ETF should deliver returns that beat traditional consumer cyclical ETFs as the economy improves.  Continue holding.

. . . . PowerShares Dynamic Media Portfolio (PBS) – Hold

PBS has rebounded back to the highs it set at the end of 2013.  This ETF is full of ‘old media’ stocks that should shine as the economy improves.  Continue holding.

. . . . iShares Transportation ETF (IYT) – Hold

IYT has been a little slower to recover from the January selloff than some of our other ETFs.  But there’s little doubt that faster economic growth is good for transportation stocks.  It won’t be long before IYT resumes its leadership role among economically sensitive ETFs.  Continue holding…

. . . . First Trust Global Wind Energy (FAN) – Hold

FAN hasn’t had as strong of a surge as our other alternative energy ETF, TAN, over the last month.  But a nicely defined upward trending price channel has emerged.  This trend should continue to push shares of FAN higher in the week ahead.  Continue holding…

. . . . First Trust NASDAQ ABA Community Bank Index Fund (QABA) – Hold

QABA was dragged down by the threat of an economic slowdown.  But there’s reason for optimism.  Bank earnings rose 17% in final quarter of 2014 over the same quarter in 2013. And the number of problem banks fell from 515 to 467 over the same time.  The improvement in the economy is clearly helping stabilize banks.  Continue holding…

. . . . Guggenheim S&P 500 Equal Weight Technology ETF (RYT) – Sell

RYT hit our $80.00 price target on February 26th.  The total return including dividend earned over our 8 month hold time is 25.2%… not too shabby.  Congratulations to everyone on a successful trade.

. . . . Morgan Stanley Cushing MLP High Income Index ETN (MLPY) – Hold

MLPY is holding steady between $17.50 and $18.75.  And it spits off a juicy dividend. Continue holding.

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

ITB has battled back to the highs of 2013.  In fact, it set a new high for the first time since May 20th, 2013 on February 26th.  The recent economic data on housing and new home building is clearly helping to boost homebuilder stocks.  Continue holding.

Action To Take

• Sell RYT for a gain of 25%

 

Category: SET Portfolio Updates