SECTOR INVESTING FOR MAXIMUM PROFITS
Market Snapshot Friday close
Market Snapshot at the close
The Dow recovered from a -350 point swoon, to end down only -18 points at 25,383 after a rather benign China announcement from Trump apparently indicated that he did not want to endanger the trade agreement. But let's see how China reacts before the all-clear signal is issued. The Nasdaq outperformed all indexes, with
the QQQ up 1.5% to 233.36, SP500 up .5% to 3,044.
The buying momentum shifted from BAnks, Airlines and Energy stocks back to the Software, Internet, Semi and Biotech trade
that has worked so well in the past two months.
The Adv/Decline line was dead even at 1400/1400, Bonds rose .7%,
Oil up 3.5% and the 10 year bond yield lower at .65%.
Oil +3.5%, Software 2.2%, China 2%, Internet 2%, Semi's 2%, Biotech 1.8%, ARKK 1.7%, Emerg Mkts 1.5%
Banks -2.3%, Airlines -1.5%, Defense -1.2%, Casinos -.6%,
SECTOR ETF PERFORMANCE AT THE CLOSE
STOCK INDEXES YEAR TO DATE
Nasdaq QQQ +10% (Now has a 26% outperf. v.s. Russell)
S&P 500 -5.5%
Dow Jones -11%
Russell 2000 -16%
STOCK MARKET THURSDAY CLOSE
The S&P 500 increased 0.5% on Friday, wrapping up a positive week, and month, on a high note following President Trump's press conference on China. The Nasdaq Composite gained 1.3%, while the Dow Jones Industrial Average (-0.1%) and Russell 2000 (-0.5%) closed slightly lower.
The market drifted mostly lower all session amid the uncertainty tied to the president's press conference. The event, which started 50 minutes late, lasted only a few minutes, and involved no questions, mattered more in what was not said rather than what was said.
President Trump didn't mention additional tariffs or a withdrawal from the Phase One trade deal. Instead, he said what was speculated beforehand: the U.S. will eliminate special treatment for Hong Kong, will study practices of Chinese companies on U.S. exchanges, and will terminate its relationship with the World Health Organization.
The reaction was described as a sigh of relief. The S&P 500 declined as much as 1.0% as the speech began but rallied into positive territory shortly after it ended. The information technology sector (+1.2%) did the heavy lifting on the back of its mega-cap components and semiconductor stocks. The Philadelphia Semiconductor Index rose 2.7%.
The financials (-1.2%), industrials (-0.6%), and real estate (-0.8%) sectors underperformed.
Economic data showed personal income climb 10.5% in April (Briefing.com consensus -6.5%) thanks to the stimulus payments authorized by Congress, but personal spending dropped 13.6% (Briefing.com consensus -15.0%). Strikingly, the personal savings rate surged to a record 33.0%.
What is done with those savings will be key to the economic recovery trajectory. Fed Chair Powell, meanwhile, reiterated the central bank will do whatever it takes for as long as necessary to support a recovery. Mr. Powell added that the Fed was not close to hitting the limits of its balance sheet.
Separately, some earnings standouts from today included VMware (VMW 156.27, +13.83, +9.7%), Dell (DELL 49.64, +4.06, +8.9%), Marvell (MVL 32.62, +2.65, +8.8%), Williams-Sonoma (WSM 83.21, +10.18, +13.9%), and ZScaler (ZS 98.09, +22.29, +29.4%).
U.S. Treasuries saw increased buying interest today, pushing yields lower across the curve. The 2-yr yield declined two basis points to 0.15%, and the 10-yr yield declined six basis points to 0.65%. The U.S. Dollar Index declined 0.1% to 98.31. WTI crude rose 4.9%, or $1.65, to $35.33/bbl.
Reviewing Friday's economic data:
Personal income in April surged 10.5% (Briefing.com consensus -6.5%) with a huge assist from the receipt of economic recovery payments authorized by Congress. Personal spending, however, plummeted 13.6% The PCE Price Index fell 0.5% while the core PCE Price Index, which excludes food and energy, dropped 0.4%
The key takeaway is that the personal savings rate, as a percentage of disposable income, skyrocketed to 33.0%! That's a lot of pent-up spending potential. Then again, it might also reflect an increased propensity to save money in preparation for a long recovery and extended period of high unemployment. What is done with those savings will be key to the recovery trajectory.
The University of Michigan's Index of Consumer Sentiment slipped to 72.3 with the final reading for May (Briefing.com consensus 73.7) versus the the preliminary reading of 73.7. The final reading for April was 71.8.
The key takeaway from the report is that attitudes about current conditions improved from April while sentiment surrounding the outlook continued to deteriorate, with income growth concerns weighing. The latter is apt to be a headwind for a pickup in consumer spending.
The Chicago PMI for May declined to 32.3 (Briefing.com consensus 41.0) from 35.4 in April.
Looking ahead, investors will receive the ISM Manufacturing Index for May and Construction Spending for April on Monday.
STOCK MARKET THURSDAY 12:15 pm:
"Stocks pulled back across the board on Friday, with investors pinned down awaiting a press conference on China announced by the White House late Thursday. Earnings news generated big early moves from Zscaler and VMware. Coronavirus vaccine stocks Moderna and BioNTech gained. Tech giants Cisco and Intel battled for the lead on the Dow Jones today.
The final trading session in May threatens to be a doozie, partly due to uncertainties in U.S.-China trade relations, which effectively evolved to Cold War status over the past week.
Nasdaq 100 futures rose up out of flat trade early Friday, climbing 0.5% above fair value. Dow Jones futures slipped 0.3%, while S&P 500 futures were flat on the stock market today, as investors awaited President Donald Trump's press conference regarding China. No time for the event was given.
Boeing swung low on the Dow, losing 1.5% in premarket trade. Earnings drove some of the heaviest losses among S&P 500 stocks, with DXC Technology (DXC) down more than 6% at the bottom of the list. Salesforce.com (CRM) and Costco Wholesale (COST) were also early losers.
United Airlines Holdings (UAL) stumbled 5%, to the bottom of the Nasdaq 100. The stock ended Thursday ahead 13.7% for the week, as it attempts to climb out of its deep coronavirus correction.
At the top of the Nasdaq, ASML Holding (ASML) rallied 2.3% ahead of the open. ASML stock ended Thursday in a buy range, just above a 319.32 buy point in a 13-week cup base. The buy range runs to 335.39.
Dow Jones Today: Cisco Acquisition, Intel Buy Point
Cisco Systems (CSCO) jumped more than 1%, then pared its gain to 0.9%, after positive analyst comments followed yesterday's announcement the company would acquire cloud-based distributed networking specialist ThousandEyes in a $1 billion deal.
The revenue contribution from ThousandEyes will be immaterial, according to a Friday note from Morgan Stanley. But the new company brings distributed networking relationships with Microsoft (MSFT), Slack Technologies (WORK), Paypal Holdings (PYPL)and Lyft (LYFT).
Cisco shares are up 41% from their March low.
Chip giant Intel (INTC) held a 1% advance on the Dow Jones today. Both Intel and Cisco are potential beneficiaries if the White House opts to tighten restrictions on China-based technologies, particularly those related to 5G networks.
Intel stock traded just below a 62.23 buy point at the closing bell on Thursday. Friday's move was just enough to boost shares narrowly above that entry.
Zoom Video In Buy Range
Zoom Video Communications (ZM) led the IBD 50 list, trading 1.5% higher in early action. The video-conferencing tech leader bounced into a buy range on Thursday, after a touchback to its 10-week moving average. It is the third rebound from 10-week support since a cup base breakout in February. Shares are well beyond the 20% boundary that marks the beginning of a profit-taking zone.
Earnings News: VMware Eyes Breakout, Big Lots Spikes
Recent IPO Zscaler (ZS) rocketed more than 16% higher as analysts hoisted price targets following a strong fiscal third-quarter report late Thursday. Williams-Sonoma (WSM) also earned a price target hike, as earnings and revenue fell less than expected in its first quarter.
Big Lots (BIG) appeared set to continue its six-week rally, spiking 17% in early trade. The closeout store chain reported earnings that were more than double analyst estimates, in its first earnings gain in five quarters. Shares ended Thursday up 56% in May, and with a year-to date gain of nearly 28%.
On the downside, earnings news sent marijuana stock Canopy Growth (CGC) down 13%, and Dexcom (DXMC) to a 5% loss. Saleforce.com (CRM), Costco Wholesale (COST) and Modine Manufacturing (MOD) also fell on earnings.
Trump Press Conference, Twitter War
Markets are likely to remain cautious ahead of a press conference that Trump said he would hold at an undetermined time on Friday to discuss matters in China. Markets reversed into sharp losses following the announcement of the remarks late Thursday.
Trump's war with the media, at least social media, also intensified sharply on Thursday. After the market closed the president signed an executive order that "seeks to curtail the power of large social media platforms by reinterpreting a critical 1996 law that shields websites and tech companies from lawsuits," according to CNN.
Whether the president has the legal authority to reinterpret laws enacted by Congress will be hashed out in courts over the coming months.
On Thursday night, Twitter slapped a warning on another Trump tweet on the U.S. military potentially intervening in the riots underway in Minneapolis. Twitter shares traded down 0.3% early Friday, were down 3% for the week at the end of Thursday's session, but still held a 10.2% gain for May.
Dow Jones Today: Catch-Up Rally Status
The Dow Jones today prepares to wrap up the second month of its rebound from coronavirus crash lows. The index ended Thursday with a 4.3% gain so far for the month. That makes it its best May performance since 2007. In what is normally s soft month for the market, the Nasdaq this year has climbed 5%, and the S&P 500 has a 4% gain.
But early action showed the Dow poised for a pullback, so it could lose some of that 4.3%. A drop to test the 25,000 mark and, more specifically, the April 29 high at around 24,800 would not be a surprise. Finding support at that level would be a bullish upshift for the market. A drop back below that line would signal that three days spent above that resistance was not enough to beat it.
A good piece of May's gains for the Dow occurred in the past week.
Coronavirus Stocks: Moderna, BioNTech, Pfizer Rise
Moderna shares bounced more than 6% on Thursday, after the company clinched an extended manufacturing deal for a potential coronavirus vaccine now in clinical testing. The move put shares in a buy range on a rebound from the stock's 10-week moving average.
Germany-based BioNTech is partnered with blue chip drugmaker Pfizer (PFE), developing a Covid-19 vaccine candidate that is now in clinical testing in the U.S. BioNTech is looking to snap a five-day decline, and retake support at its 10-week moving average. Pfizer shares were up 0.6%, one of the top premarket advances on the Dow Jones today.” -Alan R. Elliot, IBD.COM 5/29/20
STOCK PERFORMANCE AT THE CLOSE
Regeneron +6%, Cisco 5%, Nvidia 4.5% , Paypal 4%
Nordstrom -11%, AAL -4.4%, NXPI -3%, GE -3%, AXP -3%, BAC -3%
SECTOR ETF PERFORMANCE FOR 2020
Let's take a look at how sectors and indexes have done so far this year.
The best sector etf we track was Ark Innovation ARKK up a nice 26%, #2 Bonds TLT +20%, #3 GDX +17%, #4 Internet FDN +16%, and
#5 Software IGV up 13%.
SP500 benchmark is down -5%, Nasdaq +9% and Russell 2000 -14%.
But the real story is the laggards, and boy are they LAGGING!
The worst: Airlines -50%, followed by Banks -31%, Energy -34%
and the Defense stocks down 24%.
HOT CHARTS TO WATCH
SPY, QLD, PENN, DataDog, Builders etf ITB, NFLX, ROKU
QLD - Up 76% in the past 2 months, still our Fav ETF:
Penn Gaming - Huge run up from 3/23 low, +660%, wow.
Cloud Storage co. DataDog is just killing it, up 154%
in the past 2 months, but pulling back a bit now:
Builders etf - ITB: Big move in past 2 months, up 73%:
Netflix - another "Stay Home" stock to watch - had a great run,
but now breaking 21 DMA, hasn't done that since March 10, time to
Roku - The "stay at home" play is rolling over. It's down 21% from
the recent high- watch the 50 DMA at 105.8 for sell signal
HOW FAR HAVE SECTOR ETFs AND STOCKS COME FROM 3/23/20 MARKET LOW?
(as of 5/29/20)
Sector ETF Performance From 3/23/20:
#1 Builders ITB +88%, #2 ARKK +81%, #3 Energy +68%
The SPY is up 37% same time period.
Select stock performance from 3/23/20 market low:
#1 KBH +214%, #2 HAL +137%, #3 Lennar +117%
TOP 3 SECTOR PORTFOLIO & TOP 7 STOCK PORTFOLIO
TOP 3 SECTOR PORTFOLIO PERFORMANCE
FROM 12/24/18 LOW (17 months)
As of 5/29/20 the Top 3 Sector Portfolio is up 89% (from 12/24/18 mkt low). The SP500 is up 30% same time frame.
The #1 holding is QLD - 2x Nasdaq etf, now up 125%, #2 ARKK +78% and #3 is Biotech XBI up 58%.
TOP 3 SECTOR PORTFOLIO - Buy/Sells
TOP 3 SECTOR PORTFOLIO GAIN PAST 16 MONTHS
(From 12/24/18 low to 5/29/20)
ETF SECTOR PRICE 12/24/18 % Gain
Index Allocation 34%
QLD (28%) Nasdaq 2x 58.52 125%
IVW (6%) SP500 Growth 140.49 42%
Index Subtotal: 113%
ARKK Ark Innovation 35.34 78%
XBI Biotech 65.42 58%
FDN Internet 107.21 52%
SOCL Social Media 26.60 43%
IGV Software 214.22 10/30/19 25%
IHI Medical Devices 237.8 3/18/19 13%
Sector Subtotal: +58%
Dividend Stock 9%
VIG Divid Apprec 2% Div* 90.55 B. 12/26/18 30%
Dividend Stock Subtotal: 30%
International Subtotal: 0%
TOTAL RETURN: +89% SP500 +30%
from 12/24/18 low
Top 3 Sector Portfolio From 3/23/20 low (as of 5/29)
Let's see how the portfolio did from that market low on 3/23:
ETF Price 3/23 % Gain
QLD Nasdaq 2x 73.02 +81%
IVW SP500 Growth 144.56 39%
SOCL Social Media 26.62 43%
XBI Biotech 65.42 51%
FDN Internet 111.17 46%
ARKK ARK Innovation 35.34 80%
IGV Software 190.47 40%
IHI Medical Devices 184.03 45%
VIG VanDivAppr 89.24 32%
Total Return from 3/23/20 low: +65%
TOP 7 STOCK PORTFOLIO GAIN PAST 17 MONTHS
(From 12/24/18 Low, as of 5/28/20)
Stock Company Price on 12/24/18 % Gain
AMZN Amazon 1343.96 +82%
SBUX Starbucks 60.56 29%
MA Mastercard 174.65 72%
MSFT Microsoft 94.13 95%
VRSN Verisign 176.85 B. 3/30/20 24%
BLK Blackrock 436.33 B. 3/30/20 21%
Total Return 73% SP500 +30%
TOP 7 STOCK PORTFOLIO UPDATE
Note: We recently sold AMT, now looking for another 7th stock, will advise when we add it.
s. AMT @ 230.21 on 5/20/20 (Gain 3%)
Sector ETF Performance For Past 17 Months
(from 12/24/18 pivot low)
Here are all sector ETFs we track with a longer term performance through 5/29/20.
The QLD is #1 up 124% for past 17 months. #2 ARKK +78%,
#3 Semi's SMH +75%, #4 GDX +62%, #5 Software IGV +66%.
Worst: Airlines -41%, Energy -26%, and Banks -7%
The SP500 is now up 30% from the 12/24/18 low.
SELECT STOCK* PERFORMANCE for Past 17 months
(From 12/24/18 low to 5/28/20)
#1 AMD +220%, #2 Tesla 176%, #3 NVDA +173%, #4 NOW 141%,
#5 TEAM 127%.
Macy's -74%, UAL -63%, AAL -62%, Boeing -52%.
SP500 is up 30% since the 12/24/18 low:
*This list of "Select Stocks" represents key companies in each sector we track. They are meant to be bellwether indicators, and rather than cram a ton of stocks in just to cover all the favorites, this keeps the list to a minimum, allowing easier observation of where the money is flowing.
HERE ARE ALL THE ETFs IN TOP 3 SECTOR PORTFOLIO
Note: We use the same moving averages on all of our charts. They are as follows, for both weekly and daily charts:
Green line: 21 Day Moving average (or weekly depending on chart)
Orange: 50 DMA
Purple: 100 DMA
Blue: 150 DMA
Red: 200 DMA
The blue horizontal lines on each chart show areas of support
and/or resistance. They can also function as sell stop levels depending on the stock or ETF.
Click on chart to enlarge:
IVW - SP500 Growth etf, the best of the SP500 Growth stocks,
and beating the SPY by 4%, up 36% off the March 23 low.
Ark Innovation - ARKK fell 45% to March 23 low, then rebounded
a massive 88% at the high from there.
Software - IGV:
Internet etf - FDN - The FANG
Social Media SOCL -
DIVIDEND APPRECIATION ETF - VIG:
LONGER TIME FRAME - BONDS VERSUS STOCKS -
WHO WINS IN PAST 10 YEARS?
For the last 10 years, the SP500 is up 11.5% per year, and
+13.5% per year with reinvested dividends.
The SP500 has risen +193% in the last decade, but is up 255% with re-invested dividends.
Even more impressive: From the March 2009 market bottom to today (2/17/20), the SPY is up 335%, but up 438% with reinvested dividends. It gave a 17% annual return in the past 10 years.
20 year treasury bonds (TLT) have given you a 6.5% avg return
per year (including its 2.3% yrly yield).
TLT is up 39% in price for 10 years, and up 25% in yield, for a total return of 64%. The SP500 is up 438% in the same time frame with reinvested dividends.
We'll take the SP500 return over any bond, any time frame.
And it is the U.S. market has been the place to invest, rising 13.5% a year for the past 10 years, versus the world index (EFA) up 5.5% and Emerging Mkts' dismal 3% gain per year.
Top 3 Sector Portfolio Strategy
Our investment strategy is unique. In the Top 3 Sector Portfolio, we invest solely in ETFs, both long and short, with an emphasis on Sectors, as they always outperform indexes.
We will also use 2x ETFs, focusing on 6 key indexes only (SSO, QLD, UWM, TWM, QID, SDS) as warranted by market conditions. We do not short sectors.
In addition to the "Top 3 Sector ETF Portfolio," we also feature an all-stock portfolio entitled "Top 7 Stock Portfolio," utilizing the same criteria for selection of stocks as the Top 3 Sector Portfolio.
WHAT DOES "TOP 3 SECTOR" MEAN?
The term 'Top 3 Sector Portfolio' comes from a phenomenon we call the
"Top 3 Effect," where the top 3 sectors that emerge first from a pivot high or low, tend to outperform for longer durations.
After a flush out low, the best ETFs will continue to outperform 2, 3 or 6 months later.
Here's an example of this effect:
The first time period is from the 12/24/18 market bottom to today, 1/26/20, roughly 12 months.
The second period is the past 6 months (8/5/19 to 1/26/20). August 5, 2019 was the summer low.
Past 12 months
Past 6 months
Let's look at the first chart (12/24/18 to 1/26/20) the past 12 months:
Best 3 ETFs past 12 months:
2x Nasdaq QLD +128%, Semi's SMH 82%, Builders ITB +70%
When you look at Table 2 - (past 6 months) we see:
Best 3 ETFs past 6 months:
2x Nasd QLD +47%, Semi's SMH +36%, Builders ITB +25%
Note the QLD, Semi SMH and ITB builders are in the top 3 for both time frames.
Point being, that the Top 3 that emerged in the longer 1 year
time frame, tend to continue that out performance as we see in
the shorter time frame.
We will also allocate more capital to the Top 3 ETFs - concentrating resources on the best performing assets which greatly improves our returns.
The top 3-6 will vary a bit, but the first ones off that flush-out low, tend to be the ones still on top 6 months later, and 12 months later, etc.
One other thing to note, the Top 3 tend to 'pull away from the pack'
as time goes on. As time increases, this divergence increases as well.
Note that the Top 3 for the last 12 months are up an average of 93%, but the average of the next tier of 3 drops to 56%.
We have observed this effect over the course of nearly 16 years of trading, giving more credence to the power of the "Top 3 Sector Strategy."
The momentum strategy has been documented by two recent research studies, where stocks that outperformed by a wide margin over a 5 month and 12 month period also delivered a much greater gain longer term. The MTUM Momentum etf follows a similar strategy.
SHORT OR LONG - WE TAKE ADVANTAGE OF THE TREND
The beauty of this strategy is that we make money in both Bull and Bear markets, as we can switch to short ETFs when a positive trend is ending, whereas nearly all mutual funds are long only - giving them a definite disadvantage when markets decline.
Since Sectors always outperform indexes, we have a larger portfolio allocation to this area (49%).
For instance, as seen above, as of 1/26/20 the SP500 is up +39% for 2019. But the Semi etf SMH is up 82%, with Home Bldrs ITB +69%.
Yes, sectors always outperform indexes.
In normal market conditions, we allocate as follows:
2 Index ETFs (QLD and IVW)
5 Sector ETFs (This may vary between 4-6 due to mkt conditions)
2 Dividend Stock ETFs (only VIG currently)
2 International ETFs (Europe and Emerg Mkts - only IEMG now)
As of 3/21/20, our portfolio allocation is currently:
Dividend Stock: 7%
This portfolio strategy is aggressive, and is recommended for experienced investors, especially since we employ the 2x ETFs, as well as Inverse ETFs.
THE POWER OF DIVIDENDS
Dividend Yield ETFs are also critical to outperforming the benchmarks.
Investors today are desperate for yield.
We utilize domestic and international dividend stock ETFs (although currently we are in domestic only).
Currently we have VIG for our Dividend Yield allocation. VIG - Dividend Appreciation etf is up 25% the past month, with a dividend of 2%.
Divends are taxed at only 15%, as opposed to interest, which is taxed at your current income level.
The power of re-invested dividends for total return is simply amazing.
From January 1990 to today (2/18/20 as of this writing), the SP500 is up 869%. Not too bad for a 30 year return.
But wait, add in dividends reinvested, and that SP500 return rises to an astonishing +1,691%!
Dividends should ALWAYS be reinvested. Always.
Here's a list of Dividend Stock ETFs, as well as some Domestic and
international bond funds that measures performance from the 3/23/20
IDU Utilities is #1 +34% with a 2.9% yield, DVY +30% 4.5% div,
NOBL #3 +27% 2.4% div, and #4 VIG up 25% with a 2% div.
We prefer VIG due to its superior 2 and 3 year long term performance.
Top 10 Holdings of Top 3 Sector Portfolio ETFs
Note Top 10 stocks % weight of each ETF. Some are heavily top weighted, such as Social Media SOCL with over 65% of stocks in top 10, versus XBI Biotech which only has 20% of the ETF in its top 10 stocks.
The QQQ has 57% of its stocks in the top 10, that concentration helps to explain its outperformance.
Nasdaq 100 etf - QQQ Top 10: 57%
Internet etf - FDN:
Top 10: 48%
Social Media SOCL: 10: 65% Software etf - IGV - 10: 57%
Semi etf - SMH 61% ARKK Ark Innov. - Top 10: 57%
Robotics etf - BOTZ 10: 60%
Aerospace etf XAR: 41% Top 10:
Here's the top 15 for Biotech XBI: Vang. Div Apprec. etf: VIG
Top 10: 20% Top 10: 32%
SP500 Growth etf - IVW - Top 10 - 39%
NUALOLO VALLEY, KAUAI
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The information and material contained within the posts and articles appearing at this site are the opinions of the Authors alone and do not constitute a recommendation of any securities, investment strategy or investment transaction. The information and articles appearing at this site are not intended to be and should not be considered investment advice or a recommendation to any user regarding their personal investment needs or economic circumstances. None of the content provided is intended as investment advice regarding any specific security, portfolio of securities, market strategy or investment transaction.
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