Adding consumer discretionary, pharma and healthcare ETFs – Gerry Wollert (RFG, EWY, FXH)

Author: Gerry Wollert, Rebound Trading Systems

Covestor model: Rebound Mutual Fund

Disclosures: Long FXD, PJP, FXH, RGF, EWY

The chart of U.S. stock indexes for the month of June looks like a bowl. There was a steady decline for the first 3 weeks of June. Then, during the last ten days, the markets recovered almost all that was lost. The net result was that June ended almost where it started, with a huge dip in the middle of the month.

The sovereign debt concerns in Europe, along with the civil unrest in Northern Africa and the Middle East added to investors’ concerns during the past month. Lastly, our President and Congressmen are playing a game of chicken with the debt ceiling that has the markets on edge.

Markets do not like uncertainty. Wouldn’t it be refreshing to have at least some of the people in Washington be more concerned about doing what is right for the country rather than being totally obsessed with being reelected?

I am not a registered investment advisor and I do not try to predict what the market is going to do next month, next quarter, or next year. Rather, I rely on my momentum models and robust buy criteria to tell me when it is appropriate to be invested in the market.

My short and intermediate market timing systems have now turned bullish. At the end of June, I had only 29% of my capital invested in my Rebound Mutual Fund Trader portfolio. When fully invested, I hold seven exchange traded funds. The balance of my portfolio was allocated to the money market awaiting better market conditions.

As we move into July, I am moving from two open ETF positions to five with three new additions on July 5, 2011: First Trust Consumer Discretionary Alpha (NYSE: FXD), PowerShares Dynamic Pharmaceuticals (NYSE: PJP) and First Trust Health Care AlphaDEX (NYSE: FXH).

I use an upgrading strategy to continually upgrade my portfolio with strong-performing ETFs. When they start to lag, I replace them with an ETF that is exhibiting stronger growth momentum.

Following were the two open positions in my Rebound Mutual Fund Trader portfolio at the end of June:

Rydex S&P MidCap 400 Pure Growth (NYSE: RFG)

iShares MSCI South Korea Index Fund (NYSE: EWY)

Recent closed trades include:

iShares Dow Jones US Oil Equip. (NYSE: IEZ)

ProShares Ultra Oil & Gas (NYSE: DIG)

Since both my short and intermediate market timing models have turned bullish, I am now slightly more positive about the future direction of the markets than I was at the end of May. Nevertheless, I am very concerned about what is likely to happen with the debt ceiling. Failure to come up with a solution could have a dire impact on the markets around the world.

I am taking a cautious approach to the market. In this type of news driven market, it pays to keep a close eye on current holdings and not to second guess your sell discipline.