Some Sectors of Interest

Twas the day before Christmas and the markets were… What will the last trading week of the year hold for stocks? Will they have a Santa rally? I would like to say it is up to those in Washington, but it comes down to that age old issue of belief. Do investors believe there will a solution, and if so, will it be enough for them to push money into stocks? There is lies the issue facing the markets as we move forward. Faith in the future is where the challenge lies.

Since we have only a half day of trading I want to look at some sectors of interest as we end the year:

Retail – The last couple of days before Christmas and the retailers are already cutting prices attempting to lure shoppers into the stores. It has been a lack-luster shopping season thus far according to surveys. There are concerns over higher taxes for next year under the tree and it has been one big obstacle. Sales data through December 15th showed sales running 4% behind the 2011 pace. Shopper Track stated that the there was a 16.4% jump last week versus the previous week showing some signs the discounts are working. But, will it translate into profits? If we look at a chart of XRT, SPDR Retail ETF we see the uncertainty in the chart relative to the bottom line expected for the sector. Scanning shows plainly the winners and the losers in the sector, but if the data is weak, expect them all to suffer relative to stock prices. This remains a trading sector from my perspective. The downside trade following the holidays may become the most profitable. Watch and trade accordingly.

Transportation – The sector has been trading sideways since February and the break above the trendline is a upside positive as well as the leadership for the broad markets. This is a sector that has benefited from lower fuel costs as well as the consolidation in the airlines. Trucking, airlines and shipping have all shown positive moves. The railroad stocks are turning higher as shipping picks up in raw materials. I like the action in the sector on Friday with the early gap lower, but then a recovery back towards the current highs. Watch for the sector to continue to provide leadership going forward.

Healthcare – This is the forgotten sector in the battle to balance the fiscal budget. It remains a sector with a positive outlook fundamentally despite the cliff talks. The need for healthcare won’t diminish nor will the use of the facilities. The new healthcare system is in the process of being converted and offers upside to stocks as the government subsidizes the healtcare providers, and in many ways the drug manufacturers. XLV, SPDR Healthcare ETF tested support at the $40 level and the 200 day moving average on Friday. This brings with it some opportunities to add to or establish positions. I continue to like the outlook for the sector going towards 2013.

Basic Materials – Tested support near the $37 level on XLB, SPDR Basic Materials ETF on Friday after breaking through this same level a week ago. The base metals and material stocks have been the leader in the sector and the test appears to be an opportunity more than more selling on the way. The agribusiness stocks, chemical and mining companies are leading the sector. Watch for the opportunity to own the sector going forward.

This is the final week of the trading year and it will offer some opportunities based on the sentiment of investors relative to the economic outlook and a resolution to the fiscal cliff. The key will be for sentiment to set the tone for the broad markets. Watch, listen and ACT, don’t react to the market or let your emotions control your trading activity. The disciplined investor is the winner in the end.

Have Merry Christmas & Happy Holiday Season! Enjoy time with you family and Relax!