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.
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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).
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