SET Portfolio Update November 2012

November 6, 2012

Dear Sector ETF Trader Reader,

It’s Election Day!

And it couldn’t come a moment too soon.  I’m sure you’re as sick and tired of the negative campaign ads as I am!

But that’s not the only reason I’m ready for the election…

The S&P 500 has been mired in a pre-election slump.  In fact, since breaking out to a new bull market high in the run-up to QE3, the S&P has slipped 3% lower over the last two months.

Now that Election Day is here, the S&P could get out of its slump.  If for no other reason than the uncertainty it creates will be over.

From a historical perspective, it’s typically better for the stock market when a Republican wins the Presidency.  However, I’m expecting the S&P to rally after the election regardless of the outcome.

Here’s the thing…

It’s important to note that a Romney win will favor certain sectors and an Obama win will favor others.

If Romney wins, it will favor sectors that have been hit hard with regulation under Obama like financials, coal, for-profit education, and managed care.

It will also be a boost for luxury items and high end retail because he favors lower taxes on the rich.  And dividend paying stocks like REITs and utilities could benefit because he favors lower taxes on dividends.

However, if Obama wins, healthcare stocks should continue to thrive because the recent healthcare reforms will stick.  And his pro-middle class agenda will be a positive for homebuilders and consumer staples.

Any way you slice it, the election should be positive for the market.  And we’ll make sure to get you into the right sectors to benefit the most from the election outcome.

Now onto the updates…

. . . . First Trust NYSE Arca Biotech Index (FBT) – Buy up to $47.00

After momentarily dipping below the 200-day moving average, FBT has rebounded and is once again above this key support zone.  The quick reversal at this support zone could mark a bottom and a great buying opportunity.  Grab your shares of FBT up to $47.00.

. . . . iShares FTSE NAREIT Residential Plus Capped Index Fund (REZ) – Buy up to $48.25

REZ is another ETF that recently bounced off of support of the 200-day moving average. Obviously, that’s a good sign that the bullish uptrend is still intact.  REZ is one ETF that could benefit greatly from a Romney win.  Grab your shares of REZ up to $48.25.

. . . . First Trust Internet Index Fund (FDN) – Buy up to $39.50

FDN took a bit of hit when it largest holding, Google (GOOG), missed earnings estimates. But our internet ETF has rebounded nicely over the last week.  We may have been a quarter too early for the monetization of mobile internet.  But it’s coming.  And with more customers than ever planning to do their holiday shopping online, the future is still bright. Grab you shares of FDN up $39.50.

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

IYM is keeping with the trend of ETFs that have recently bounced off their 200-day moving average.  But there’s no denying economically sensitive sectors have struggled since the Fed introduced QE3.  But a revival in the US housing market and the promise of more infrastructure projects in China could lead to big things for basic materials stocks in the weeks and months ahead.  Grab your shares of IYM up to $70.00.

. . . . SPDR S&P Oil & Gas Equipment & Services (XES) – Buy up to $36.00

Oil services is another economically sensitive sector that’s struggled after QE3. XES has stumbled as WTIC oil prices have fallen from $100 to $85 per barrel.  The good news is a Romney win will likely be a boost for the oil industry.  Grab your shares of XES up $36.00.

. . . . iShares Dow Jones US Pharmaceuticals (IHE) – Buy up to $90.00

The rally in Pharmaceutical stocks came under pressure this month.  It was simply a case of a few key players not living up to investors’ lofty earnings expectations.  As a result, IHE is once again below our buy up to price.  If Obama retains the White House, this is likely a fantastic buying opportunity.  Grab your shares of IHE up to $90.00.

. . . . Market Vectors Agribusiness ETF (MOO) – Hold

MOO’s steady march higher has stalled out of late.  But don’t be fooled.  The fundamentals for a surge in Agribusiness profits are as strong as ever.  This is one sector set to soar no matter who ends up as the POTUS.  Continue holding for bigger gains ahead.

. . . . ALPS Alerian MLP ETF (AMLP) – Hold

AMLP has dramatically outperformed the broad market over the last few months.  And it could get even better if Romney wins.  Our energy MLP ETF will likely benefit from lower taxes on dividends and increased investment in energy infrastructure.  Continue holding AMLP for bigger gains ahead.

. . . . First Trust ISE Revere Natural Gas Index Fund (FCG) – Hold

Natural gas stocks didn’t have a great 3rd quarter.  But they’re looking much stronger as the price of natural gas continues to climb.  In fact, natural gas prices are the highest they’ve been in more than a year.  And with the expectation of a cold winter and more utilities switching from coal to nat gas, the higher prices are likely here to stay.  That bodes well for much improved earnings this quarter.  Continue holding for bigger gains.

. . . . PowerShares S&P SmallCap Health Care (PSCH) – Hold

The stock market slump over the last few months was especially hard on small cap stocks. And PSCH was no exception.  The good news is we’re still sitting on a small gain in PSCH. And if Obama wins the election, we’ll likely get a rally in healthcare stocks across the board.  Continue holding for bigger gains.

. . . . SPDR S&P Homebuilder ETF (XHB) – Hold

Homebuilders continue to be one of the strongest sectors of the market.  XHB hit a new high of $26.84.  And it’s well on its way to our $28.00 price target.  Obviously, it’s good to see the much maligned housing sector leading the markets.  As history has shown, a strong housing market can lift the entire economy.  Continue holding XHB for bigger gains.

. . . . SPDR S&P Retail (XRT) – Hold

The recent consumer confidence and retail sales data are one of the economy’s bright spots.  Last month, consumer confidence rose to its highest level since February 2008. And retailers reported surprisingly strong sales in the period between back-to-school shopping and start of the holiday shopping season.  Not surprisingly, XRT is once again on the upswing.  Continue holding XRT for further gains.

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

Tech stocks have come under pressure from less than stellar 3rd quarter earnings.  But don’t forget, last quarter was marred by the flare up of the European sovereign debt crisis.  It caused many companies to delay purchases and other investment as they waited to see if Europe could right the ship.  They’ve succeeded, at least for now, and businesses have got back to doing business.  I’m expected IGV to regain its bullish momentum with a better than expected 4th quarter earnings.  Continue holding IGV.

Action To Take

• Move iShares Dow Jones US Pharmaceuticals (IHE) to Buy

 

Category: SET Portfolio Updates