Fiscal Cliff: The Only Two Words Investors Will Hear This Week

 

If humanity does not opt for integrity we are through completely. It is absolutely touch and go. Each one of us could make the difference.”  — R. Buckminster Fuller

 

Barring a flock of Black Swans swooping down to descend on Wall Street, investor focus will inarguably be placed upon the political theater now playing out in Washington.

All eyes will be on the fiscal cliff negotiations, and with the potential for low volume and high drama combining for the year’s final full week, both investors and traders could hardly be blamed if they sit out the game until the New Year takes effect.

As demonstrated this past week, both the Republicans and Democrats are quite willing to use the media to leverage their respective positions, and Wall Street seems more than happy to supply a knee-jerk response to whatever is being offered up.

Somewhat surprisingly, in spite of the battering Wall Street experienced on Friday, the week did see gains in all three of the major indices. The Dow Jones Industrial Average (DJIA) ended in the black to the tune of 0.4%, while the benchmark S&P 500 Index (SPX) rose 1.2% during that same time frame. Finally, the Nasdaq (COMP) topped the list, gaining 1.7% for the week.

The bottom line for the last full week of the year: With so much potential for volatility, investors might want to nurse a warm cup of eggnog and stay in cash, while awaiting the outcome of a classic game of political brinkmanship, one that will strongly set the tone for 2013.

What the Periscope Sees

For the fourth straight week, technology remains at the top of the Sabrient SectorCast ETF Rankings. The Rankings rate each of the ten U.S. industrial sector iShares (ETFs) by Sabrient’s proprietary Outlook Score and are revised on a weekly basis. However, not far off, in terms of total score, is Health Care, which is a sector that investors should become familiar with, especially in 2013, when Obamacare becomes the law of the land.

Here is a list of some of the top performing Health Care ETFs, along with the year-to-date returns, as of the third week in December.

XLV — Health Care Select Sector SPDR Fund, +15.91%

IBB — iShares Nasdaq Biotechnology Index Fund, +32.20%

VHT — Vanguard Health Care Index Fund, +17.97%

IYH — iShares Dow Jones US Healthcare Sector Index Fund, +17.55%

FXH — First Trust Health Care AlphaDEX Fund, +21.35%

As an alternative to buying the ETFs themselves, consider buying long call options, as a way to leverage your portfolio’s funds. April expiration calls that are several strikes out-of-the-money remain good candidates for options with a relatively low rate of theta decay.

ETF Periscope

Full disclosure:  The author does not personally hold any of the ETFs mentioned in this week’s “What the Periscope Sees.”

Disclaimer: This newsletter is published solely for informational purposes and is not to be construed as advice or a recommendation to specific individuals. Individuals should take into account their personal financial circumstances in acting on any rankings or stock selections provided by Sabrient. Sabrient makes no representations that the techniques used in its rankings or selections will result in or guarantee profits in trading. Trading involves risk, including possible loss of principal and other losses, and past performance is no indication of future results.