Wednesday, January 16, 2013

Playing the Transports at an All-Time High with an ETF

The market today is following the same pattern it has for the last few days, opening lower and rallying throughout the session to close near the highs. A little over 2 hours into the trading day the S&P 500 is back in the green and close to hitting a fresh 5-year high.

Dow Transports

Already breaking out to new highs is the Dow Jones Transportation Average. Since forming a double bottom patter in mid-November the index is up 16% and sitting at the best level EVER!

The index is composed of 20 stocks and the top performers recently have been the Airlines that are breaking out. The Guggenheim Airline ETF ($FAA) is up another 1.3% today to the best level in nearly 2 years.

The Dow Jones US Railroads Index is also close to an all-time high and a few of the leaders in the Dow Transports are rail stocks. Both Kansas City Southern ($KSU) and Union Pacific ($UNP) have very bullish charts.

** FYI: The Guggenheim Airline ETF ($FAA) was recommended in our newsletter "The ETF Bulletin" on 9/26/12 at $29.50/share and today it is trading at $38.56, a gain of over 30%in less than 4 months for an ETF!!

Here is the actual email sent to subscribers:

NEW PURCHASE:
Today we will be adding a new ETF to the ETF Rotation Portfolio in The ETF Bulletin newsletter. The Guggenheim Airline ETF (FAA) will be added with a cost basis of $29.52/share. The ETF will account for 10% of the portfolio and this move lowers the cash balance to 17%. Two new positions could be bought if we choose to move to 100% invested in the coming weeks.

FAA does not fall into the “normal” category of ETFs we typically purchase in the newsletter of for clients. However, with oil prices falling recently and airlines being able to charge more per ticket and add-ons, it puts the oft-flawed business model in an attractive situation.

The ETF is a basket of 26 airline stocks with the top 3 making up 45% of the entire portfolio (LCC, DAL, LUV). All three have similar charts in that they have pulled back recently and are near support, making a buying opportunity even more appealing. The annual expense ratio is 0.65%.

We will place a 12% stop-loss on FAA at $26.00 in the event we are wrong and the current valuations and oil prices below $100/barrel are not enough to push the sector higher. 



You can make big money in ETFs, the key is know which of the over 1200 you should own.

To find out more about the ETFs in The ETF Bulletin please contact the office at 1-877-383-7366 or info@pennfinancialgroup.com

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