« Gold pull-back, Wed., Sept. 28, 2005, 6:16 AM | Main | The fat lady is singing, Wed., Sept. 28, 2005, 4:00 PM »

September 28, 2005

Weekly portfolio selection, Wed., Sept. 28, 2005, 7:17 AM

While the software has not been completed yet, it's on the way, so I thought I would move forward now with the first portfolio. I will call the first one the Balanced Fund of Funds Portfolio.

Every week, I'll look to buy exactly $1,000 of one ETF and sell short exactly $1,000 of another ETF. I intend to keep the portfolio hedged by the end of the week.

What I'm going to do however is give the reader some insights into my decisions before I make them, and then make them at different times during the week. However, by the end of each week the portfolio will be flat except for gains or losses.

If I make one long or short decision, as planned, but cannot make the other, as per my announced intentions, for whatever reason, then I will make an offsetting trade that I will fully report in real-time. Sometimes markets change abruptly, so I'm trying to accomplish a number of objectives here -- mostly teaching. But I don't want to end up with unnecessary losses either. Then my students won't be so interested in attending class. :-)

Whenever I make a decision to buy or sell during the week, I will post it in real-time. If I close one long position I will that week close one short position.

What I am trying to show here are the reasons I would buy versus sell particular funds.

This week, I will be trying to SELL IYZ at $23.50 or higher, and BUY XLP at $22.75 or lower.

IYZ is the Dow Jones U.S. Telecom Sector ETF. I am concerned that competition in this sector is over-heating and also that many of the companies are debt-laden, which makes for tough sledding when interest rates are rising. The best time to buy the Telecom sector in any country is when the economy is booming or about to boom. For reasons below, I think this is not the best time to be buying telecom stocks generally.

XLP is the S&P Consumer Staples Select Sector SPDR. This is a defensive sector for turning to when the U.S. economy weakens. Prior to Katrina-Rita, it appeared to me that the U.S. economy was starting to improve. But after the storms caused so much damage to the energy infrastructure, which will cause shortages plus cause a situation where damages will be passed on to consumers and to companies that have heavy use of oil & gas and derivative products. That circumstance is likely to slow the economy for maybe six months. Therefore, I am looking for relative strength in the GICS 30 sector, which, despite my lack of enthusiasm for many groups in this sector, presents a good offset to the Telecom sector.

The full description of these ETFs is available at www.AMEX.com. The Dow Jones U.S. Telecom Sector ETF (IYZ) is on the top and the S&P Consumer Staples Select Sector SPDR (XLP) is on the bottom of this chart.

I will also for each purchase or sale provide you a link to a free RiskFile Report so that if you have any interest in studying the underlying economic factors as well as the technical analysis factors I usually provide and discuss, then you would have the opportunity to do so. RiskFile is a new service of Edward Liu and associates in Vancouver BC. I have been helping him build his service because I think it holds promise based on the people and the concepts.

In addition to the Balanced Fund of Funds portfolio, I intend to offer one of the Dow 30 components, and also possibly another one that I have been monitoring for a few weeks to see how it works out.

Posted by Posted by Bill Cara on September 28, 2005 07:17:22 AM | Category: Portfolio - Balanced Fund of Funds