Doing more with less, that is Corporate America’s mantra. If you are uncertain about this take a look at the latest Productivity and Costs figures just released by the Bureau of Labor Statistics at http://www.bls.gov and while visiting the site be sure to review the latest employment numbers as well.

This is not a new concept, but it does often get overlooked during times of economic boom only to climb back to the top of the priorities list during tough times, like now. During the peak of the recession, costs were aggressively cut in every manner conceivable. Personnel were fired, investments deferred, benefits slashed or eliminated and so on.

Demand has begun to rise as the recovery slowly gains traction. To meet rising demand for products and services employers are going to squeeze every last drop out of their current staff before hiring as labor is typically the most expensive input cost. In order to extract that last ounce of productivity employers are going to need tools. Some of the best tools currently available are provided by the Technology sector and these tools are powered by the Internet.

New Recommendations

Internet has a seasonally favorable period that begins in mid-April and runs through the beginning of July based upon the AMEX Internet Index (IIX). This period has produced average returns of 7.6% and 9.0% over the last 5 and 10 years, respectively. First Trust DJ Internet (FDN) remains the top pick for this trade and can be bought on dips below 23.50. Employ a stop loss at 21.15 and take profits at the auto sell of 28.18. Top five holdings are: Google, Amazon, eBay, Yahoo and Juniper Networks.



Computer Technology also comes into favor in mid-April and remains so until mid-July. This trade has averaged 9.4% over the past 5 years and 8.4% over the last 10. SPDR Technology (XLK) is the top choice to execute this trade. Use a buy limit of 21.25 and a stop loss of 19.13. Lock in gains at the auto sell of 25.34. Top five holdings are: Microsoft, Apple, IBM, AT&T and Cisco. 



Buy limits for both recommendations are well below current levels primarily for two reasons. First, there are approximately six weeks remaining before their seasonally favorable periods begin. Second and illustrated in the charts above, is the fact that XLK and FDN are trading near monthly resistance levels. Buying at or near support accompanied by a confirming MACD buy signal during a seasonally positive time period is the preferred method to enter a new trade.

Current Advice/ Updates

On average, the past two weeks have improved the portfolio’s performance by 3.1% from just 0.3% on February 17 to 3.4%. Seasonal trades are showing an average 7.3% gain while non-seasonal trades are currently down 8.2%. TAN, FAN, NLR and PBW can be purchased at current levels. These are long-term trades and are attractive at current levels. The D.C. pendulum will swing again from healthcare back to jobs and exports and when it does new incentives and initiatives could materialize that reignite the alternative energy sector.

Biotech’s seasonality is ending now. Sell iShares NASDAQ Biotech (IBB) into strength. IBB will be closed out of the portfolio at today’s close, for a gain of around 12%. As a reminder, the Broker/Dealers seasonality ends in April. Seasonal strength failed to materialize this year and the position in iShares DJ US Broker-Dealer (IAI) was stopped out of the portfolio on January 29.

On February 25, First Trust ISE-Revere Natural Gas (FCG) and iShares S&P Global Energy (IXC) were added to the portfolio when they briefly traded below their respective buy limits. SPDR Oil & Gas Equip & Service (XES) has not been added to the portfolio yet. XES remains open, however, chase will not be given as IXC is currently providing exposure to the Oil Sector Seasonality trade. 

 

New ETFs

Fifteen new ETFs have been launched over the last four weeks maintaining the healthy pace that has existed for several months. Like previous months there were no new Earth-shattering ideas this time around as all new offerings neatly fall into existing sectors that were already providing a sufficient number of choices. 



Eight of the new offerings were triple-leveraged funds; two were from Direxion and six were from ProShares. Direxion’s offerings are a complementary pairing of a bull and bear bond fund. ProShares took a similar route by pairing three broad index funds. A cautionary word: these funds are designed to track the daily move of the underlying index and will not provide three times the total index return over any longer time period.

Of the remaining seven, there are three emerging market funds, a bond fund, a foreign developed market fund, a physical gold fund (based in Canada) and a fund of closed-end funds, PCEF. Top honors, for most interesting, are bestowed upon Emerging Global Shares Brazil and China Infrastructure (BRXX, CHXX) and PowerShares CEF Income Composite (PCEF).

BRXX and CHXX are likely to produce handsome returns as the governments of Brazil and China continue to invest heavily in the backbone of their rapidly growing economies. PCEF appears to be a conduit to a myriad of funds that would normally be difficult to invest in individually, exactly what an ETF is intended to do, although the total annual fund expenses are steep at 1.81%.

Disclosure Note: At press time, officers of the Hirsch Organization did not hold any positions in the securities mentioned or listed in this issue.

February Highlights

February, normally the weak link in the Best Six/Eights, was actually a decent month to be in the market this year in stark contrast to last year. Excluding Bear/Short funds only Utilities were down and just barely, shedding 0.4%. Semiconductors (8.7%), Leveraged Long (6.8%), Mid Cap (5.0%), Small/Micro Cap (4.3%) and Consumer (4.3%) were the top sectors of the month. Excluding nuclear and other alternatives, a carbon-based Energy sector would have also been a top performing sector with an average gain of 4.5%.

A quick glance at the 1-Month Leaders & Laggards paints a similar picture as sector performance, but Natural Resources/Gold and Materials produced some of the month’s best performers, excluding Leveraged funds. Solar funds proliferate the Laggards list, lead by a sharp 11.5% decline in Claymore/MAC Global Solar (TAN). Sovereign debt concerns continue to escalate around the globe forcing many nations, such as Spain and Germany, to curtail the generous subsidiaries that solar has been enjoying in recent years as governments struggle to regain control of rapidly swelling deficits through a combination of spending cuts and/or tax increases.

On cue, the number of leveraged funds in the Top 10 Most Active list in February did rebound from just one in January to three in February. A spiking VIX is the most reasonable explanation for the activity as traders jump in and out of these funds in an effort to quickly capture outsized gains (and probably more than a loss or two). Also of note is the curiously unique increase in trading volume for S&P 500 Spyder (SPY) while the others on the list actually declined from January levels.

New 52-week highs and lows contracted in February. Declines in new highs were the greatest as the market corrected briskly from mid-January to early February. As the market has so far failed to move to new recovery highs the number of bear/short funds making new lows also shrunk dramatically to just two. All other new lows have not been trading for a full year. Biotech and consumer based ETFs were responsible for the majority of the new highs.

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