Mercifully, a rough October for the bulls has drawn to a
close. The better news is that November has a reputation for
being kind to stocks. After all, the eleventh month of the year
is the first month in the strongest six-month cycle in which to
own stocks. Better still is the fact that this is a presidential
election year and November has been the best month of the year in
which to own stocks in that scenario for more than 10
elections.
Since 1950, November is tied with April as the second-best
month of performance for the S&P 500 with an average gain of
1.5 percent, according to the Stock Trader's Almanac. Of course,
some sectors outperform others at any point during the year and
that is certainly the case in November.
For example, over the past 25 Novembers, the energy and
natural resources sectors
have only posted monthly gains 11 times
. So this probably is not the month to go running to the Energy
Select Sector SPDR (NYSE:
XLE
) or the Materials Select Sector SPDR (NYSE:
XLB
).
The following represent some of the better ideas at the sector
for the month of November.
iShares Dow Jones US Telecom Index Fund (NYSE:
IYZ
)
Already being touted as a viable play on an
Obama reelection
, IYZ and comparable ETFs are in the sweet spot of favorable
seasonal trends.
In Novembers dating back to 1987, the telecom sector has
posted up months 16 of 25 times with a mean gain of 1.67 percent,
according to Allocationforlife.com. That number is slightly
skewed by an almost 11 percent gain in 1999 and a plunge of
nearly 22 percent in 2000, but telecom names perform well in
November. Period. An Obama reelection could just be icing on the
cake for IYZ, the Vanguard Telecommunications ETF (NYSE:
VOX
) and related funds.
PowerShares QQQ (NASDAQ:
QQQ
)
With the way Apple (NASDAQ:
AAPL
) lately (off almost 11 percent in the past month), shying away
from ETFs heavy on the technology sector might seem like a smart
move. Seasonally speaking, it is not a good idea. With an average
gain of 1.6 percent in Novembers dating back to 1971, only two
months of the year, January and December, are more kind to the
Nasdaq.
As luck would have it, traders will quickly be able to figure
out what November 2012 has in store for QQQ. The ETF is currently
found resting at critical support. That support level is also
QQQ's 200-day moving average. If that gives out, QQQ could have
significant downside ahead. If buyers step in and do so quickly,
QQQ should rally into the first quarter.
The tech sector has climbed in 15 of the past 25
Novembers.
Market Vectors Pharmaceutical ETF (NYSE:
PPH
)
Like IYZ, the Market Vectors Pharmaceutical ETF is perceived to
be a low-beta play and low-beta has worked this year. PPH shares
some other things in common with telecom ETFs. The
pharmaceuticals fund has given back some of its gain recently and
this ETF is another one that could see near-term upside if
President Obama wins reelection.
And like the telecom sector, health care has a penchant for
performing well in November. The sector has climbed in 17 of the
past 25 Novembers, according to Allocationforlife. Regarding PPH,
the ETF is different today than it was when it debuted in 2000
(it used to be HOLDRs ETF), it is worth noting the fund has risen
in nine Novembers since 2000.
First Trust Consumer Discretionary AlphaDEX Fund (NYSE:
FXD
)
Holiday shopping is certainly one reason why discretionary tend
to perform well in November. That thesis may seem too simple to
be profitable, but it has worked as the consumer discretionary
sector has risen in about two-thirds of the previous 25
Novembers. November bullishness for discretionary stocks and ETFs
can be the start of more upside through year-end and into the
first quarter as well.
As for the First Trust Consumer Discretionary AlphaDEX Fund,
the ETF has lagged more traditional cap-weighted discretionary
ETFs this year. However, FXD has some traits worth acknowledging.
First, no stock accounts for more than 1.58 percent of the ETF's
weight, meaning the fund is not excessively exposed to the whims
of just one or two stocks. Second, First Trust's AlphaDEX suite
employs
screening techniques based on growth and value
metrics
.
That could give FXD a leg up on its rivals, particularly if
risk on returns in earnest. Actually, FXD is already starting to
outpace some of its rivals. Over the past 90 days, FXD is up 8.5
percent compared to 6.2 percent for the Consumer Discretionary
Select Sector SPDR (NYSE:
XLY
).
For more on ETFs, click
here
.
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