Fingers Crossed for Some Big Buyers

 | Dec 23, 2011 | 2:30 PM EST  | Comments
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This commentary originally appeared Dec. 23 at 12:15 p.m. EST on ETF Profits -- our pros have decades of combined investing experience to help you make the most profitable decisions when constructing your ETF portfolio. Click here to learn more.

Between Dec. 13 and Dec. 19, a Santa Claus rally was looking less and less likely. But on Dec. 20, the major averages flashed a sign of strength, following through on the 17th day of a rally attempt that began Nov. 28. Now the chances for a pop into the end of the year are looking pretty good.

Still, this market isn't out of the woods yet. Institutional buying is what's needed for the rally to succeed. The hope is that big buyers will come back into the market during the first few weeks of January.

Model Portfolio Update

Every Friday, I provide an update to my ETF model portfolio. My portfolio currently holds seven ETFs. Four holdings were added this month.

iShares Dow Jones Select Dividend Index Fund (DVY): I went long this fund Sept. 8 at $50.10. It's a large fund with net assets of $9.3 billion, holding 101 stocks, and has an expense ratio of 0.40%. It yields 3.5%. Lorillard (LO) gets the top weighting at 3.47%. Other top holdings include Lockheed Martin (LMT) at 2.70% of the portfolio, Entergy (ETR) at 2.21%, Chevron (CVX) at 2.16% and CenturyLink (CTL) at 1.91%. Early Friday, shares of DVY were trading around $53.60, up $0.16. Despite light volume in DVY recently, technicals overall are bullish, with the fund appearing poised to break out from a long base that started in June.

PowerShares Dynamic Pharmaceuticals Portfolio (PJP): I initiated a position Sept. 16 at $25.55. PJP is a small fund with assets of nearly $180 million with an expense ratio of 0.63%. It holds just 30 stocks. Top holdings include Pfizer (PFE) at 5.25% of the portfolio, Bristol-Myers Squibb (BMY) at 5.23%, Eli Lily (LLY) at 5.22%, Amgen (AMGN) at 5.17% and Merck (MRK) at 5.03%. Shares of PJP recently exchanged hands around $28.07, up $0.09. Technicals are strong here, as well, as the fund recently broke out above a buying area of $27.16.

Guggenheim Insider Sentiment Fund (NFO): I initiated a position Oct. 7 at $28.50. It's another small fund with assets of just over $100 million. NFO mirrors the performance of an equity index called the Sabrient Insider Sentiment Index, which is made up of 100 stocks with favorable corporate insider buying trends and recent earnings estimate increases. Top holdings in NFO make for an eclectic group of stocks. American Public Education (APEI), at 1.16% of holdings, gets the top weighting, followed by Smart Balance (SMBL) at 1.11%, Washington Post (WPO) at 1.10%, Popular (BPOP) at 1.08% and DeVry (DV) at 1.08%. Shares of NFO were recently trading around $30.90, up $0.08. The fund is close to breaking out above a descending trend line, although its 200-day moving average at $32.74 could be a significant resistance level.

iShares S&P MidCap 400 Value Index Fund (IJJ): I initiated a position Dec. 1 at $75.55. The fund has assets of nearly $2 billion and yields 1.8%. It holds 301 stocks and has an expense ratio of 0.27%. This week, the top five holdings have a different look. New York Community Bancorp (NYB) remains the top weighting at 1.03%. New to the top five, meanwhile, are HollyFrontier (HFC), Avnet (AVT), Everest Re (RE) and Ashland (ASH). About 28% of the fund is allocated to the financial sector. Shares of IJJ were recently trading around $76.21, up $0.19 -- and, in terms of its chart, it's in a similar situation as that of NFO. The fund is trying to break out above a descending trendline, but it could also face some selling pressure at its 200-day moving average of $77.35.

iShares Dow Jones U.S. Home Construction Index Fund (ITB): I bought shares Dec. 1 at $11.50. ITB is a relatively small fund with assets of $370 million, with an expense ratio of 0.47%. It holds 27 stocks. D.R. Horton (DHI) gets the top weighting at 9.84%, followed by NVR (NVR) at 9.33%, Lennar (LEN) at 9.18%, Toll Brothers (TOL) at 8.80% and PulteGroup (PHM) at 7.07%. Shares of ITB recently exchanged hands around $11.86, unchanged on the day. The fund continues to trade well after a recent breakout above $11.47. It's one of the few ETFs out there that's shown legitimate signs of accumulation in recent weeks.

iShares Dow Jones Transportation Average Index Fund (IYT): I went long Dec. 5 at $90.25. IYT has assets of nearly $400 million. It owns 21 stocks and yields 1.5%. Top holdings include Union Pacific (UNP) at 11.87% of the portfolio, FedEx (FDX) at 9.17%, Norfolk Southern (NSC) at 8.19%, Alaska Air (ALK) at 8.18% and UPS (UPS) at 8.01%. Shares were recently trading around $89.63, down $0.06. IYT's 200-day moving average has been a resistance level since late October, but I believe chances are good for a breakout here above $90.69, its Oct. 27 intraday high.

ProShares UltraShort QQQ (QID): I bought shares Dec. 14 at $46.75. The market foundation remains shaky, so it makes sense to have some insurance for the portfolio. Still, I will keep this holding on a tight leash, because a market melt-up could continue into the end of the year. Whether I'm dealing with stocks or ETFs, I always use stops in order that small losses don't get out of control. QID's recent low of $43 could be a support level. If it breaks convincingly below this area, I will cut bait. Shares recently exchanged hands around $45.44, down $0.16.

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