SET Portfolio Update September 2009

| September 1, 2009

September 1, 2009

Don’t look now but the NASDAQ’s lagging the S&P 500 and the Dow for the last three weeks.  This is major reversal for the indices.  The tech heavy NASDAQ’s been leading the markets higher all year.

Why the sudden change?  What’s going on?

What makes this really puzzling is the recent industry news.  Leaders like Intel (INTC) and Dell (DELL) have been absolutely glowing lately.  They’re increasing revenue guidance and blowing away analysts’ earnings estimates.  When we got news like this a few months (or even weeks) ago, the entire industry was moving higher.

Now the market seems to be shrugging off positive news.  And that can be a scary situation.  When the markets don’t respond favorably to good news, they’ll likely pullback on any bad news.

But I think there’s something else at play here.

Take a look at this weekly chart of the NASDAQ.  You’ll see it reached a long-term downtrend line three weeks ago.  It’s no coincidence the tech index starting showing weakness as soon as it reached this level.  Remember, the longer the trend, the more powerful it is.  And this one’s been intact since October of ’07.


In fact, the NASDAQ’s recent weakness is because it’s been performing so much better than the rest of the market.  It’s the first major index to climb back up to its long-term downtrend.

To add fuel to the fire, the NASDAQ’s also retraced 50% of its losses from the ’07 peak.  A 50% retracement’s another key resistance level.

These technical resistance levels have combined to put a lid on the NASDAQ’s gains the last three weeks.  It’s a good place for the bears to make a stand.  I don’t think the resistance will amount to much more than a speed bump.  However, we’ll likely see increased volatility over the next few weeks.  At least until the NASDAQ makes a convincing push through and closes above the overhead resistance.

I don’t see this as a sign the market leadership’s changing.

Now for the updates…

Position Updates

…. Vanguard Industrials ETF (VIS) – Hold

The markets did us a favor.  They pulled back just as our August issue was ready to be rolled out.  The pullback provided an ideal entry point.  You should have been able to open a position in VIS at a great price before it moved up.  We’re now past our buy price.

We’ll get a good reading on the state of the manufacturing industry today.  The ISM manufacturing report is set to be released.  (Unfortunately, I had to ‘go to press’ with this month’s update before the release.)  It’s widely anticipated the manufacturers will return to growth for the first time since January ’08.  And that’s a huge positive for our ETF and the economy.

…. iShares S&P North American Technology – Software Index Fund (IGV) – Hold

IGV continues to move higher.  We’re up 7.5% in a little over a month.  The move has been tempered by the NASDAQ hitting resistance of it long-term downtrend.  Hold tight as the tech stocks make their way through resistance.

…. SPDR KBW Bank ETF (KBE) – Sell

Congratulations on your quick 28% gain!  If you missed the sell alert, we sent it out on August 21st.  It’s not too late.  KBE’s been flat since hitting our price target.  Go ahead and lock in profits now.

I think there’s still plenty of upside.  The financial industry remains a centerpiece of the economy.  Any economic recovery should translate into a healthier financial sector.  But locking in gains is the right move.  The risk of a pullback after a fast run like KBE enjoyed is too great to ignore.  We’ll look to get back into the financials after things have cooled down a bit.

…. Market Vectors Agribusiness ETF (MOO) – Buy up to $38.75

Our Ag ETF took a hit last Friday.  UBS analysts downgraded two of the top holdings in MOO.  The downgrade came after the US Department of Agriculture said farm profits could fall as much as 38% from 2008.  Their reasoning is farmers will cut costs as grain and livestock prices fall.

I think this is just a blip on the radar.  I think Ag stocks are in for a big rebound as the economy recovers.  Right now the economy is bottoming out.  The demand for food should be too.  When food prices start moving higher, we’ll see a quick about-face from the analysts and Ag business stocks.  Hold tight as we let this situation play out.

…. SPDR S&P Metals and Mining ETF (XME) – Buy up to $43.50

There’s no other way to say it, this ETF is volatile… it’s not uncommon for XME to move 3%, 4%, or 5% in a single day.  But even with all the volatility, XME hasn’t gone anywhere since the beginning of June.

I think a rebound in manufacturing in the second half of ’09 could get XME moving higher again.  More manufacturing will increase demand for industrial metals.  This could put serious pressure on inventories.  The end result will be higher prices for commodities like copper, iron ore, and titanium.  Hold tight for now.

…. Energy Select Sector SPDR Fund (XLE) – Hold

As usual, the energy market is all about oil.  Right now it looks like a showdown is brewing on the charts.  Oil’s been bouncing between support and resistance since the early part of June.  The resistance level is $75 per barrel.  The support is the 75-day moving average. These two levels have slowly been converging for the past three months.

It looks like a big breakout is coming.  It’s hard to tell if the break will be higher or lower.  I think it will be higher.  It’s all going to depend on the economic data.  And the data’s been getting better every month.  As long as it continues to get better, we should see energy prices go higher from here.

…. SPDR S&P Semiconductor ETF (XSD) – Hold

The news out of the semiconductor industry just keeps getting better.  XSD is up 41% since we recommended it!  The latest bump came from Intel (INTC).  Last week they announced Q3 revenue will be higher than originally thought.  Management increased estimates from $8.5 to $9 billion.  The news sent semiconductor stocks up across the board.

It looks like increasing our price target was the right move.  Now we’ve got $45 in our sights.  Hold tight for now.

…. PowerShares Dynamic Building & Construction Portfolio (PKB) – Hold

PKB’s riding the 20-day moving average higher since breaking through resistance at the 200-day moving average.  We’re up 25% since we recommended it in April!  Now we’re closing in on our price target.

We’ve recently hit a bit of resistance at the year-to-date high set back in early January. It shouldn’t be much more than a speed bump as PKB makes its way to our price target. Hold on for another move higher.

…. iShares S&P N. American Tech – Multimedia Networking Index Fund (IGN) – Hold

IGN hit another high last week as we close in on our price target.  We’re up better than 29%!  Our ETF’s been slowed by the same resistance our other technology ETFs have… The NASDAQ is battling key resistance.  Until it breaks through, expect to see increased volatility.

Action To Take

  • Sell SPDR KBW Bank ETF (KBE)
  • Change Vanguard Industrials ETF (VIS) to Hold


Category: SET Portfolio Updates

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