Wall Street High on Main Street Money Influx

 

Try not to become a man of success, but rather try to become a man of value.”  — Albert Einstein

 

The market is most decidedly on a nice little roll so far this year. Out of the twenty-two sessions that have taken place to date, both the Dow Jones Industrial Average (DJIA) and the S&P 500 Index (SPX) have been in the black nearly two-thirds of the time.

Once again, all three of the major indices made solid gains last week. The Dow was up 0.8%, SPX gained 0.7%, and the tech-heavy Nasdaq (COMP) increased by 0.9%. The milestones continue to impress, as the Dow topped the psychologically important level of 14,000 for the first time since 2007, the SPX soared over 6% for January, and equity funds and ETFs saw the largest influx of cash within a four-week period in over 16 years, totaling over $12 billion.

So is all this simply a collective post-fiscal cliff sigh of relief from investors? Or is the U.S. economy finally posting such robust numbers that investors have decided that, for the moment at least, the inherent risk in equities is worth taking in exchange for the lure of higher returns?

Sure, the momentary dose of sanity that has taken hold in Washington plays a part in the recent bull run now underway, as do the domestic economic numbers, particularly gains in employment numbers and positive growth in manufacturing numbers, as indicated in the rise of the ISM Index. But do these factors really justify the SPX coming within 60 points of hitting its all-time high?

Perhaps.

But of equal relevance is the fact that no seriously bad news has emerged to shake investor confidence as of late.

No big new Eurozone crisis, no major escalation of Mid East tensions, no sudden displays of force from Mother Nature, no reemergence of talk of a hard China landing.

So the trend is towards the upside, and momentum continues to build, attracting a lot of the money that has been either on the sidelines or in bonds since the crash of ’08.

The bandwagon is gaining traction, always a hard thing for the retail investor to resist.

Precisely why it may be a perfect time to take at least some of January’s gains off the table if they are there for the taking, and to hold back the urge to push all the chips into the pot on the current hand.

By nature, you never see a Black Swan coming. A little bit of a contrarian play in an otherwise bullish portfolio right now would not be a foolish way to go.

What the Periscope Sees

The Technology Sector once again sits atop the Sabrient SectorCast ETF Rankings leaderboard. 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.

Following is a list of some of this year’s top performing Technology Sector ETFs to date, as of the end of January:

FDN — First Trust Dow Jones Internet Index Fund, +9.80%

SMH — Market Vectors Semiconductor ETF, +8.20%

QTEC — First Trust NASDAQ-100 Technology Sector Index Fund, +8.05%

IGV — iShares S&P GSTI Software Index Fund, +7.25%

MTK — SPDR Morgan Stanley Technology ETF, +5.94%

As an alternative to buying the ETFs themselves, consider purchasing call options as a way to leverage your portfolio’s funds. For this purpose one could use May expiration calls, several strikes out-of-the-money.  Though you do pay a premium when buying any options, volatility levels continue to sit at relatively low levels. This gives options buyers an opportunity to purchase calls at something of a discount relative to recent pricing.

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.

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