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Market Update: The Top 3 Sector Portfolio

Updated: 6 hours ago


SECTOR INVESTING FOR MAXIMUM PROFITS





Market Snapshot







THURSDAY 4/9/20 Noon



"The Dow Jones Industrial Average rose more than 550 points Thursday morning before paring gains after the Federal Reserve unveiled plans for $2.3 trillion in coronavirus lending programs. Meanwhile, oil prices surged more than 10% amid a Reuters report that Russia and Saudi Arabia reached a deal to cut production. Dow Jones stock leaders Apple and Microsoft turned mixed, as the new stock market rally continues.

Dow Jones stock Apple (AAPL) edged higher in today's stock market, while Microsoft (MSFT) lost 0.3%. FANG stock leader Amazon (AMZN) moved down 0.5%, approaching a new buy point. Costco (COST) sank 2% on missed monthly sales results. Disney (DIS) jumped almost 5% on Disney+ subscriber numbers, while Starbucks (SBUX) reversed from early losses to rise nearly 1% after an updated profit outlook.


The Nasdaq composite came off its early highs, trading up 0.6% in morning trade Thursday. At around 10:45 a.m. ET, the S&P 500 moved up 1.8%, while the Dow Jones industrials rose 1.9%.


Among exchange traded funds, Innovator IBD 50 (FFTY) gained 0.5% Thursday morning. The ETF of top growth stocks is more than 25% off its 52-week high. Meanwhile, the Nasdaq 100-linked Invesco QQQ Trust ETF (QQQ) traded barely lower, and the SPDR S&P 500 (SPY) ETF moved up 2%.


Within the current stock market rally, the tech-heavy Nasdaq is down about 10% year to date through Wednesday's close. Meanwhile, the S&P 500 and Dow Jones Industrial Average are down 14.9% and 17.9%, respectively, through April 8.


Currenty, at Noon, the Dow is up 482 points or 2% to 23,910, nearing the 24K

level! SP500 is up 2% to 2,795, Nasdaq up 1% to 8,175 and Russell 2000 again outperforming, up a stunning 4.5% today.


The Adv/Decline line is very bullish at 2700/230, VIX is sitting at 42.80, down over 50% from its 85 high a few days ago, as investors sense a turn in sentiment. The 10 year bond yield is .73%, Bonds up .3%, Oil down 1.5%,

and GDX rising 8%. Interesting day.

Coronavirus News: U.S. Cases Top 435,000


The coronavirus outbreak continues to spread across the U.S. According to the Worldometer data tracker, the number of confirmed U.S. cases rose above 435,000.


New York state continues to be the epicenter of the outbreak in the U.S. with more than 151,000 total cases, or about 35% of the country's confirmed total. But New York is also showing significant signs of slowing. Despite the slowing, New York City Mayor Bill de Blasio said the city may need to "double down" on social distancing.


Confirmed Covid-19 cases worldwide climbed above 1.5 million with more than 89,000 deaths. Now, investors will be turning attention to the economic impact of the coronavirus outbreak.


Early Thursday, the Labor Department said weekly jobless claims rose to 6.6 million, above expectations for 5 million new applicants. Meanwhile, the Federal Reserve unveiled details for its $2.3 trillion in coronavirus stimulus lending programs.


Treasury Secretary Steven Mnuchin told CNBC's Jim Cramer that the U.S could reopen for business in May.


Midday Thursday, oil prices surged more than 10% amid a Reuters report that Russia and Saudi Arabia reached a deal to cut production.


Coronavirus Stock Market Rally


According to IBD's The Big Picture, the stock market is showing new signs of strength. On Monday, the stock market rally powered up. Per Monday's Big Picture, "With a confident move Monday, the stock market's new uptrend now finds itself on better footing."


On Wednesday, stocks perked up on rising coronavirus optimism. Despite the strength in the indexes, per Wednesday's Big Picture, " ... discipline is still key. Don't plunge into the market all at once. Only deploy more capital if your portfolio is making progress."


Dow Jones media giant Disney jumped almost 5% after the company said its Disney+ platform topped 50 million subscribers globally.


Disney stock continues to recover after bottoming on March 18. The Dow Jones stock is still about 30% off its 52-week high and below its 50- and 200-day lines.

In stock market news, Costco slid 2% after a spike in March sales results didn't meet analyst targets. The warehouse retail giant reported a 12% increase in monthly sales to $15.49 billion year over year, short of the Street's expectations for a 19% increase.


Coffee giant Starbucks said its fiscal-Q2 earnings would likely fall by 47% amid the coronavirus outbreak. The company withdrew its full-year guidance, while suspending its share repurchase program.


Starbucks stock reversed from early losses to rise 1%, on pace to extend a three-day win streak. The Dow Jones stock is still about 30% off its 52-week high and below its 50- and 200-day lines.


Among the Dow Jones stocks, Apple stock moved up 0.1%, as the stock moves closer to its 50-day moving average line, a key resistance level. A new base is forming, but no proper buy point is clear yet.


Bullishly, stock's RS line is near new highs. The RS line measures a stock's price performance vs. the general market and can be used to gauge leadership potential.


Software giant Microsoft lost 0.5% in early trade, as it holds just above the 50-day line. The Dow Jones leader is moving up the right side of a new cup base, showing a 190.80 buy point." IBD.COM 4/9/20 excerpted


YEAR TO DATE

Nasdaq -10% (far outpacing the other indexes)

S&P 500 -14%

Dow Jones -17%

Russell 2000 -24%



SECTOR ETFS at NOON

Best:

Airlines +8%, GDX 7%, BAnks 6%, Real Estate 7%, Hi yld 6%,

Utilities 5.5%, Builders 5%, Casinos 5%, Retail 4.5%

Worst:

Oil -1%, Dollar -.8%


STOCKS

Best:

Airlines: UAL +14%, AAL 12%, Retail: Macy's 13%, Norstrom 11%,

Banks: WFC 9%, JPM 8%, C 8%, and Casinos: CZR 6%, and Builders:

TOLL +8%, KBH +6%, LEN +6%

Worst:

Intuitive Surgery -3%, Atlassian -2%, Gilead -1.8%, and Intel -1.6%






THE ULTRA VIOLENT RALLY OFF THE 3/23 LOW


The March 23rd low represented a 3 year low in the indexes, and the point when the SP500 fell 35%, the Russell close to 40% off the February highs.


From that low, there have been some explosive moves in several sector stocks:


Most notably, the Builder sector, with KBH up a stunning 95%, Toll 66% and Lennar +48%. Oil stocks, of all things rallied, taking Chevron up a whopping

58% in 4 weeks. Exxon Mobil had it's best rally in 5 years up 40%.


Defense stocks also stood out, with Lockheed +31%, Rockwell +39%. Big banks performed well, with Morgan Stanley +41%, AXP +34% and BLK +38%.


Not doing so well: Netflix +3%, GILD +3%, and Regeneron -1.5%.


SP500 was up 23% same time frame.






Here's how the Sector ETFs have done from 3/23/20:


This is the chart to watch. Clearly shows the money flows.


Note how the SPY is now up 25% from that low. That is very impressive. But let's see what sectors were hottest, and which were nottish:


Winners:


Energy is the #1 standout with XLE up 47%, #2 is Builders up 40% on a bet that consumers will be out in force looking for housing in the 2nd half. #3 Real Estate REIT VNQ up 40%.


The #4 position went to Gold Miners +36%, #5 QLD +37% and#6 Defense +34%.


Losers:


Dollar is down 4%, Bonds -.4%. Others lagging: China +11%, Software 16%,

and Social Media 16%. Not bad numbers, but clearly underperforming the SP500's 25% jump.






Dramatic drop in Covid-19 new cases - encouraging:





We are halfway thru the "late accumlation phase" getting closer to the downslope for the U.S.










TOP 3 SECTOR PORTFOLIO - UPDATE



As we have noted previously, the rally off the 3 year low made by the indexes

on 3/23/20 was significant. As a result we remain cautiously optimistic,

but also watching for a pull back after the SP500 has risen 25% from that low.


We've seen strength in Builders, Energy, Real Esate and Defense, as well as

Biotech and Health care. Note that we bought the Builder's etf ITB on 4/7/20.



We continue to like the Biotech etf XBI - this one is quite different from the big cap Biotech index etf IBB. XBI is made up of smaller biotech stocks (but some big caps too), but it features a much more equal weighting.


The Top 10 include many of the medical stocks that are in the forefront of the Covid-19 effort: Moderna, Regeneron, Gilead, and Vertex. This is a much better way to buy Biotech than putting all your cash into one stock. XBI is in our Top 3 Sector Portfolio.







WHAT TO WATCH FOR ON SP500 CHART:

There are basically 3 support levels on the SPY to watch:


The first level is the 12/24/18 Xmas Eve low at 234.


The next level is 218, which is the previous low the SPY made on 3/23/20 (a 3 year low).


The 3rd level is 201.75, which is the .5 Fibonacci Retracement from March of 2009.


We can either bounce or break below any of the above levels, and if we do break

below with power, we would probably visit the next lower level soon.

Chart below.


So we will continue to bounce along the bottom, but at one point, the

virus will recede, and people all over the world will get back to work,

although it will be slow in starting up. And when that happens, there will be

monster pent-up demand for products and services worldwide. And that's when

buying Disney on sale at $88 makes sense.







SP500 Bear Market Rallies in 2007-2008:

Why we're not at the bottom yet....









NEWS LINKS


THURSDAY MARKET ACTION


FED POWELL: 2nd HALF RECOVERY COULD BE ROBUST


MORGAN STANLEY: "THE WORST IS BEHIND US,

MOST ATTRACTIVE RISK/REWARD IN YEARS, TIME TO BUY"


JOBS REPORT: 700,000 JOBS LOST IN MARCH,

BUT WAIT TILL APRIL....


STOCKS HAVE WORST FIRST QUARTER IN HISTORY


JNJ BEGINS CLINICAL TRIALS ON CORONAVIRUS VACCINE


VACCINE MARKET: $35 BILLION INDUSTRY


CORONA VIRUS ANTIBODY THERAPY WILL BE FASTER THAN A VACCINE


GILEAD'S DRUG REMDESIVIR CURRENTLY TESTING FOR CORONA VIRUS IN CHINA ACCORDING TO W.H.O.







TOP 3 SECTOR PORTFOLIO & TOP 7 STOCK PORTFOLIO



TOP 3 SECTOR PORTFOLIO PERFORMANCE

PAST 15 MONTHS


As of 4/9/20 the Top 3 Sector Portfolio is up 48% (from 12/24/18 mkt low). The SP500 is up 20% same time frame.


The #1 holding is #1 QLD 2x Nasdaq up 70%, #2 ARKK +34% and

#3 is Biotech XBI up 28%.


We hope the drops we've seen in New York, U.S. and Europe in number of cases of Corona will continue to decline, as well as hospitalizations and mortality rates. As the curve declines, we can begin to figure out

how long it will take to re-start the global economy.


We sold the last of our SDS on 4/9/20, as it reached the -7% area, and in honor of the "7% Rule," we unloaded it even though a pullback may be near (we can always re-enter, will advise)



TOP 3 SECTOR PORTFOLIO - Buy/Sells


New Buys:


ITB - Builders etf - B. 1/2 position on 4/7/20 @ 29.83



New Sells:


SDS -Sold last 1/2 on 4/9/20 @ 25.37 (-7% loss) (note observance of 7% rule)


Sell Stops


S. 1/2 SDS @ 28.23 Triggered 4/6 @ 28.21 (2% gain)




TOP 3 SECTOR PORTFOLIO GAIN PAST 15 MONTHS

(From 12/24/18 low to 4/9/20)


ETF SECTOR PRICE 12/24/18 % Gain


Index Allocation 34%

QLD (26%) Nasdaq 2x 58.52 + 69%

IVW (8%) SP500 Growth 140.49 26%

Index Subtotal: 64%

Sector 57%


SOCL Social Media 26.60 17%

XBI Biotech 65.42 28%

FDN Internet 107.21 24%

ARKK Ark Innovation 35.58 12/26/18 34%

IGV Software 214.22 10/30/19 3%

ITB Builders 29.83 4/8/20 14%

Sector Subtotal: +25%


Dividend Stock 9%


VIG Divid Apprec 2% Div* 90.55 B. 12/26/18 24%


Dividend Stock Subtotal: 24%


International 0%


International Subtotal: 0%



TOTAL RETURN: +48% SP500 +20%


TOP 7 STOCK PORTFOLIO GAIN PAST 12 MONTHS

(From 12/24/18 Low, as of 4/9/20)


Stock Company Price on 12/24/18 % Gain


AMZN Amazon 1343.96 +51%

SBUX Starbucks 60.56 21%

MA Mastercard 174.65 56%

MSFT Microsoft 94.13 75%

AMT American Tower 223.43 B. 3/30/20 15%

VRSN Verisign 176.85 B. 3/30/20 10%

BLK Blackrock 436.33 B. 3/30/20 9%


Total Return 48% SP500 +20%



TOP 7 STOCK PORTFOLIO UPDATE



New Sells:



New Buys:


B. AMT on 3/30 @ 223.43

B. VRSN on 3/30 @ 176.85

B. BLK on 3/30 @ 436.33


SELL STOPS






Sector ETF Performance For Past 15 Months


Here are all sector ETFs we track with a longer term performance through 4/8/20 (from the 12/24/18 market low).


The QLD is #1 up 62% for past 15 months. The #2 slot went to Semis up 52% and #3 Bonds TLT up 38%, #4 Software IGV +34%, and #5 ARKK Ark Innovation up +26%.

.

Worst: Energy -42%, Airlines -52%, Retail -21% and Banks -25%.


The SP500 is now up 13% past 15 months.





SELECT STOCK* PERFORMANCE for Past 15 months

(From 12/24/18 low to 4/8/20)


Leading:


#1 AMD +185%, #2 SNAP 145%, and #3 NVDA 111%.


Laggards:


Haliburton -68%, Macy's -80%, UAL -69%.


SP500 is up 13% in past 15 months:




*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.








CHARTS OF SECTOR ETFs IN TOP 3 SECTOR PORTFOLIO Updated 4/8/20


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




NOTE: The following charts are all Weekly charts:



QLD - 2X Nasdaq etf






IVW - SP500 Growth etf











STARBUCKS:







Ark Innovation - ARKK fell 35% from the all time high:






Software - IGV:








Internet etf - FDN - The FANG







Builders etf - ITB





Biotech XBI:






Robotics - BOTZ:






Social Media SOCL -







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


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.


SECTORS OUTPERFORM

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:

Index: 41%

Sector: 52%

Dividend Stock: 7% ​

International: 0%​

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 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 42% in the last 12 months, the #1 performer among its asset group. It is yielding 1.7% per year.

Another advantage for dividends is the tax rate of 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.




The #1 dividend ETF is VIG - Vang. Div Appreciation fund, one that seeks out companies that are increasing their dividends each year/quarter.


As noted above, VIG is up 42% from the 12/24/18 market low, with a Div yield of 1.7%, giving it a total return of 44%. That's very strong for a dividend ETF.


That VIG performance is better than Div Aristocrat's 31% return, or Schwab Div Equity's +32%. We hold VIG in the Top 3 Sector Portfolio.








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.


Copyright 2016 Top3SectorPortfolio



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