SET Portfolio Update November 2014

November 4, 2014

The stock market rebound that began in mid-October continued to pick up steam right through the end of the month.

Amazingly, the S&P 500 has already recovered the 10% pullback.  And it’s even made a new 52-week high this week.

The way I see it, 3rd quarter earnings are the main reason for the rapid pace of recovery…

According to Factset, 78% of the companies in the S&P 500 have beat their 3rd quarter earnings estimates.  That’s well above the 59% we typically see beat estimates.

The large number of companies beating expectations isn’t surprising.  Earnings estimates had been drifting lower for weeks in advance of the actual reports.  The bar was so low it was nearly impossible for these companies to miss these earnings.

Don’t forget, low interest rates and strong cash flow have given companies plenty of money to repurchase their own stock.  And companies in the S&P 500 continue to take advantage of this cheap money to inflate earnings per share and keep investors happy.

But it’s not just earnings that have this market flying high…

There were plenty of hedge funds that were caught on the wrong side of the reversal in mid-October.  Now they’re at risk of underperforming the market for the entire year.

We’re already seeing lots of money manager making their bets on small caps and other areas with big upside in hopes of boosting their performance before the end of the year.

The result is a massive influx of money that should propel US stocks higher through the end of the year.

Now, onto the updates…

. . . . Market Vectors Retail ETF (RTH) – Buy

RTH is our most recent recommendation.  I’m expecting the 4th quarter to be the strongest holiday shopping season on record in the US.  Go ahead and buy RTH up to $65.00.  The price target for RTH is $75.00.

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

QTEC has been surging higher over the past few weeks.  It has moved beyond our $42.00 buy up to price and reached a new high of $42.39.  That’s a peak return of just 2.6%… but there’s plenty more in store from this ETF.  I’m expecting the large cap tech stocks to lead the markets higher through the end of the year.  The price target for QTEC is $50.00.

. . . . First Trust Health Care Alpha Dex Fund (FXH) – Hold

FXH recently made a new high of $59.68.  That’s a solid gain of 8.1%.  There’s no denying that health care stocks have been on fire this year.  And they should continue to push higher from here.  My target for FXH is $65.00.

. . . . Global X Social Media Index ETF (SOCL) – Buy

SOCL continues to hover around $20.00.  Right now some concerns about growing costs and expenses have taken the wind out of social media stocks’ sails.  But the long run outlook for these stocks is better than ever.  Buy SOCL up to $20.00.

. . . . Financial Select Sector SPDR (XLF) – Hold

XLF is another of our ETFs making new highs this week.  It just reached a high of $23.99. That’s a solid gain of 12.1% since we recommended it earlier this year.  It’s good to see financial stocks moving higher in the recent uptick for the market.  Leadership from the financial sector is usually a big boost for the overall market.  My price target for XLF is $29.00.  Continue holding for bigger gains.

. . . . Guggenheim Solar (TAN) – Hold

Solar stocks have been on a rollercoaster ride of volatility this year.  The latest thing to hurt TAN is the drop in oil prices.  Cheaper oil makes traditional energy cheaper and can be headwind for solar.  Nevertheless, we’re still up 10.8% on this trade.  And there’s no other sector that has the upside that TAN offers.  My price target is $60.00.  Continue holding…

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

FXG made a new high of $40.88.  We’re now up a solid 18.5% on this trade!  More importantly, this new high represents a bullish breakout above the $40.00 resistance level. This should set the stage for FXG to make a run at my $42.00 price target in short order. Continue holding.

. . . . PowerShares Dynamic Leisure and Entertainment (PEJ) – Hold
. . . . PowerShares Dynamic Media Portfolio (PBS) – Hold

PEJ and PBS are on the verge of breaking the downtrend that has dominated the price action of consumer discretionary ETFs most of the year.  Investors have been slow to return to this sector.  But that should change quickly as we see money managers seek out opportunities for a strong finish to the year.  My price target for PEJ is $41.00.  My price target for PBS is $30.00.  Continue holding.

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

MLPY has battled a bout of volatility recently as investors have pulled money out of any investment tied to the energy sector.  There’s no doubt in my mind that this is only temporary.  MLPY has been a solid investment so far.  The ETF has paid $2.03 in dividends since we recommended buying it and our total return is around 15%.  My price target for MLPY is $21.00.  Continue holding.

Action To Take

• Move QTEC and FXH to Hold.

 

Category: SET Portfolio Updates