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Test Post for the One Egg Strategy

Proprietary branded ETFs (Exchange Traded Funds) from brokerage firms with zero online commissions is a new emerging trend with implications that could change the face of online trading. The extension of discount brokerage firms into discount trading vehicles seems a completely natural evolution.

Scottrade has become the latest online broker to join the movement by launching 15 new ETFs called FocusShares. Trading of these ETFs will be commission-free to Scottrade brokerage customers and registered investment advisers using Scottrade Advisor Services as their custodian. The ETFs will still be available on other platforms for investors at the customary fees charged by those firms.

The low cost fees associated with the ETFs will be attractive to investors as well. The fees range from a low of 0.05% for the US Market Index ETF to a high of 0.19% for the 11 sector index ETFs.

We are proud to announce our new model launch incorporating these ETFs for subscribers of SectorExchange.com & OnlyETFs.com. This format will allow investors to manage their money based on these low fee and zero transaction cost ETFs. We look forward to our future relationship in helping investors capitalize on the benefits of sector rotation and a low cost vehicle to maximize returns.

Investors have experienced plenty to worry about over the last month. The result has been a pullback for the broad markets of 6-8% depending on the index. On March 16th the selling reversed off the intraday lows as buyers stepped back into the market. Despite the selling there seems to be some enthusiasm for stock ownership. Today I wanted to cover three sectors to watch based on current activity and future opportunities.

Energy has benefited from the rise in crude oil. There are plenty of opinions relative to the future price of crude. The most common outlook is for crude to move higher short term based on supply disruptions from Libya. If that is true owning crude itself is a prudent play, but expect plenty of volatility. The energy sector overall has been a benefactor of higher prices over the last six months. SPDRs Select Energy ETF (XLE) has gained more than 37% since breaking from the consolidation in September. iShares Oil Equipment & Services ETF (IEZ) has gained more than 50% during the same period. Both dropped in conjunction with the broad market over the last three weeks, but look to have caught support. Throw in the current speculation on higher oil prices and the stocks are on the rise towards the February high again. Can they sustain the move to the upside, or is this a snap back rally? It is prudent at this time to believe the rally continues.

The outlook is for growth based on the current geopolitical issues facing the Middle East. Bringing Libya back on line would take time even if there was a resolution today. The situation in Bahrain is not improving and could escalate further causing more issues for the oil region of the Middle East. All of this is leading to the alternative energy space gaining momentum. Solar, wind, natural gas and electric have all been bantered about as the alternative to crude oil. While they make for good headlines the progress in these areas are far from putting any immediate dent in the demand for oil.

Telecom was put back on the radar with the AT&T acquisition of T-Mobil USA. The winners and losers were quickly defined by analysts. Sprint dropped more than 17% following the news was cast aside like a shoe. Several weeks ago the speculation started that Sprint and T-Mobil would be married to verse AT&T. The bigger question is where does that leave the telecom sector overall? Scrambling for market share and opportunity? Don’t count Sprint out of the game just yet! There efforts to rebuild the company has made progress and earnings growth is building with cost saving from network sharing deals. Sprint is definitely worth watching as a high risk growth play looking forward.

iShares Telecommunications ETF (IYZ) broke support at $22.70 last week and is sitting on that level currently. The weakness in the sector has mirrored the major market indexes and we have put this back on our watch list for future growth opportunities, however, the better approach would be to scan the parts and look for the leaders. It would be beneficial to make a list of those tossed to the side by the AT&T deal. American Tower (AMT) and Crown Castle (CCI) are two on the downside worthy of watching. On the upside Apple (AAPL) may be the biggest winner of the AT&T deal as 34 million people would have access to the iPhone.

Banks got the approval last week to pay dividends and buy back stock. The impact to the sector was nothing short of boring. At first blush you would think the sector would rally on the news, after all, the Treasury and the Federal Reserve believe balance sheets are in good order looking forward. The SPDR KBW Bank ETF (KBE) remains in the red year-to-date and failed to make any significant move to the upside on the news. Drilling into the ETF we find most of the stocks have pulled back 6-10% off the February high and attempting to hold support at the December levels. All of this adds up to a cautious outlook for the sector. The large bank ETF remains on our watch list, but for now not on our buy list.

Here are four sectors in solid up trends off the August lows. We have discussed each several times over that period. In each instance we uncovered the sectors based on ideas developed from watching the fundamental data, the charts and the data relative to the economy.

In the case of leisure stocks the premise was during an economic recovery the consumer sentiment improves which would translate into more discretionary spending. This was the same premise we used for buying retail stocks in October and November for the holiday shopping sweepstakes. The play in PEJ has worked well and the upside move should continue based on the outlook for the economy continuing to improve along with jobs.

The leisure sector has been improving over the last six months as the economy recovers. The sector includes restaurants, casinos, hotels and media businesses. Each of these sub-sectors have been improving making PowerShares Leisure & Entertainment EFT (PEJ) a positive choice to capture the move in the broader sector. Tracking off earnings for the fourth quarter we have seen the restaurant stocks do well behind the likes of Darden Restaurants, YUM Brands, and Chipotle Mexican Grill. Hotels stocks such as Marriott (MAR), Wyndham (WYN) and Starwood Hotels & Resorts (HOT) have added to the growth of the sector. Wynn Resorts (WYNN) and Las Vegas Sands (LVS) have helped the casino stocks and Viacom (VIA.B) in the media stocks. The sector still has upside opportunity, as the recovery expands consumers expand spending. PEJ broke above resistance at $19.10 and is continuing the uptrend.

The premise for the semiconductor sector was originally purely technical as it was the leading sector off the 2009 lows. The trend has broke in April 2010, but renewed with the bounce off the August lows. The trend in smart phones and cloud computing led us back to the sector and we remain optimistic near term for the trend to continue.

Semiconductor stocks have been one of the leading sector since the low in August. Some analysts and investors have stated the sector is overbought? One thing I know is the market can remain in an “overbought” situation longer than many estimate. Thus, the trend is higher and looks to move even higher. Several fundamental reasons to consider are first, semiconductor inventories are 20% below prior peaks, second, capacity is still 10% below prior peaks, and third, integrated circuits are 10% below prior peaks. This data is subject to the sector reaching or exceeding prior peaks to make the data meaningful, but there is still upside opportunity in this current run in the semiconductor sector. iShares Semiconductor ETF (SOXX) shows the uptrend in play and the 30 day moving average is support. Any pullback short term may offer a good entry point.

The primise for medical devices came from the 2010 healthcare reform bill which put a 2% tax on the devices to help pay for the additional cost of the bill. The focus was on the provders buying equipment before the tax went into effect. Some of that happened, but the reality became clear, more people having access to healthcare put more demand on the providers and thus, the need for more equipment. The trend is still moving and opportunities unfolding in the sector.

Medical Devices as a sector has moved higher despite the new healthcare reform regulations. Part of the bill was an additional tax on these devices to help pay for the cost burden for the taxpayers. iShares US Medical Devices ETF (IHI) has continued to move higher eclipsing the April high recently. Stocks like Zoll Medical (ZOLL) and Alere (ALR) have set the pace over the last four months. The ETF is one worth scanning the holdings (27) for further opportunities. American Medical Systems (AMMD), Integra LifeSciences (IART), Intuitive Surgical (ISRG), St. Jude Medical (STJ) and Sonosite (SONO) were worth watching for further upside on our last scan of the companies within the ETF.

The Build America Bonds have pulled back on the rise in interest rates, but more of the program being discontinued. This has been a positive outlet for states to raise money to fund projects that current budgets can’t afford. However, additional debt is not a good thing for most states. This helps the municipal bond market as well and the sector offers some upside growth, but the play is on the dividend distribution and stability of principle. This opportunity is just starting to unfold.  

Build America Bonds were a part of the economic stimulus package in 2008 to help states raise capital for infrastructure projects and put America back to work. We could all argue relative to the success of this program, but the bonds were successful. The bill expired on December 31st for new issues, but don’t despair, there was a bill sent to the floor of Congress this week to include them in the new budget proposed by President Obama. If it is approved it could add some upside momentum to the existing bonds. PowerShares Build America Bond ETF (BAB) is one way to purchase these bonds in an exchange traded fund. The fund is holding near support at $24.50 and pays a 6.1% dividend yield. Watch the bill and the bonds for an opportunity looking forward.

Daily events create investable ideas. Having a strategy to capture the ideas and system to do the necessary research offers up some great opportunities over time. We spend time every day looking for investable ideas by sector. We develop and nuture the ideas until they become investable opportunities. As with any process of investing you need a disciplined implementation process that defines the entry, stop/exit and target for every investment. Stay focused and you will be surprised how many ideas present themselves over time.

Welcome to our new model. If you have questions, or would like more information, call our office at 800-369-5759. We will post more information on the site as we build out these pages.

We added the following positions today from the ETF Watch page today:

Added February 3rd
KIE - Insurance sector made a technical break higher today to clear the consolidation range. This is a positive short term for the sector technically. Fundamentals continue to improve and the outlook remains positive. We added the play as a intermediate term play. Posted the stop to manage the downside risk at 3%.

Market updates and highlights are available on the Watch List or Watch the Market Spotlight Video.

PLAY LIST ACTIVITY:

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Due to technical difficulties updates will be delayed – check first thing in the morning.