Start the conversation
Comment on This Story
Or to contact Money Morning Customer Service, click here.
You gotta love the "Spiders," folks - and I'm not talking about our eight-legged friends though, if you're into those... well, to each their own.
I mean the SPDRs: Standard & Poor's Depositary Receipts. They're a huge "family" of exchange-traded funds (ETFs) that track gold, the S&P 500, real estate, European stocks, and dividend-payers - just to name a couple.
In my experience, some of the coolest, most indispensable products SPDR offers are the "Sector Spiders," a group of 10 ETFs that track all eleven sectors, as defined by the Global Industry Classification Standard, of the S&P 500 index. (There are only four telecoms on the S&P 500, so they get grouped in with Information Technology, which makes sense when you think about it.)
The upshot is they make it really, really easy to track, trade, and invest in almost everything you can think of. There's never a shortage of tradeable ideas and opportunities in the Sector Spiders, even if all you're doing is playing simple sector rotation - the flow of money out of one sector and into another.
I recently did a deep dive on all 11 Sector Spiders for my subscribers; we talked about where these were headed in 2021 and where to grab the best chances to make money all year round.
You can always go here to learn about how to subscribe to Weekly Cash Clock, my weekly options trading research service, but I'm going to share this one with everyone today because (a) I'm fired up about what I'm seeing on my charts here, and (b) it's January, start of a brand new year, and I think this is a fantastic opportunity to make money throughout the coming year.
Let's take a look...
Here's a Look at This Year's Top Spider Pick
The S&P Sector Spider family consists of Materials, Financials, Consumer Discretionary, Energy Select, Technology, Industrials, Communication Services, Heathcare, Consumer Staples, Utilities, and Real Estate - we looked at all of these the other day.
The one I like best for this year is... the Financial Select Sector SPDR Fund (NYSEArca: XLF). To make it into the S&P 500 financial sector, a company has to have, among other things, at least $8.2 billion in market capitalization - these mega-cap and "too big to fail" banks and financial services companies certainly meet the criteria. The top 10 financial sector constituents are...
Berkshire Hathaway Inc. Class B (NYSE: BRK.B), JPMorgan Chase & Co. (NYSE: JPM), Bank of America Corp. (NYSE: BAC), Citigroup Inc. (NYSE: C), Wells Fargo & Co. (NYSE: WFC), BlackRock Inc. (NYSE: BLK), Morgan Stanley (NYSE: MS), Goldman Sachs Group Inc. (NYSE: GS), Charles Schwab Corp. (NYSE: SCHW), and S&P Global Inc. (NYSE: SPGI).
The XLF's 2020 performance against the S&P 500 was... well, complicated.
SOMETHING'S UP: There's a unique crypto phenomenon almost nobody is paying attention to. But this experienced crypto trader is watching, and he's discovered double-, even triple-digit moves in a matter of days nearly every time Bitcoin jumps. More...
The fund closed out 2020 down around 4% as measured from Jan. 1, 2020 to Dec. 31, 2020; the S&P 500 was up around 16% over the same time frame. Only real estate and energy were its worst performers.
But, as has been said many, many times by now, 2020 was unlike any other, and a Jan. 1 to Dec. 31 comparison isn't necessarily the best one in this case. I think a lot of investors, analysts, and historians will end up using the "Coronavirus Crash" lows of March 23, 2020 as a better yardstick for many purposes.
Over that time frame, XLF rose just shy of 67%, whereas the S&P 500 shot up nearly 68% - that's a different story, and it's really a testament to the raw power of economic stimulus.
As you can see on a recent screen grab above, XLF shot up almost uninterrupted from the March lows until early June, when it entered a kind of "triangle" formation and traded in a flat, pretty narrow range until November, when it gapped up on news that Biden won the presidential election - financials, like nearly everything else in the market, love certainty.
It's been trading higher for most of January on hopes of more stimulus, more business activity that pads banks' bottom lines. Low interest rates last year and for (probably) the rest of 2021 might throw a little cold water on financials, but you can't fight gravity; I think the outlook for XLF is bullish this year, both in the short and long term.
MASSIVE BULLISH PREDICTION: Bitcoin could hit $500,000 before the 2020s are over - learn more about why right here...
Short-term, we've got bank earnings kicking off, and they're... not all that great. Not long ago, FactSet was expecting the third-largest decline in earnings per share ever, around 8% in the aggregate, but - and this is a bullish but - those declines have recently been revised upward, and banks can expect a healthy boost to trading revenue this year as everybody and their grandmother jumped into the markets post-crash.
So with XLF, we've got a case of "It's not as bad as it could've been," lending some support. That's the market for you; traders will gladly take "less bad" over "bad" anytime.
The Federal Reserve has also recently allowed the banks in XLF to resume share buybacks and dividends, so long as they come out to less than the banks' average net income over the previous 12 months. Remember: When the economy started to nosedive in March, the Fed clamped down on those kinds of activities; they were expecting the restriction would last longer, but the Fed recently gave banks the go-ahead to resume those kinds of activities.
All this adds up to an expected 10% or 15% run higher on the XLF for 2021, but there are ways you could do even better.
Here's How to Profit
If you want to own XLF long term, I'm expecting a decent entry point at the end of this week, as JPMorgan Chase, Wells Fargo, and Citi report earnings this Friday. Traders that have been buying the rumor all this time will sell the news, and likely send XLF lower for now.
If you want to trade XLF, too, I think selling puts and collecting premium is a good strategy here; you'll become obligated to own XLF at a lower price than market, and, like I say, I'll buy a $32 stock for $28 all day long.
Long-term equity anticipation securities (LEAPs) can be a great way to play XLF if, as I said, you'd like to own and trade it for the long run. On a nice, liquid ETF like XLF, you can buy calls all the way out to January 2023 for less than $1 each, or $100 for 100, in some cases.
The bottom line is, I think 2021 could be bullish for XLF and a lot of other sectors and asset classes. Take Bitcoin - I think 2021 looks good there, too. In fact, I've recently revised my 2021 Bitcoin estimate to $65,000, up from $50,000.
That could very well be fantastic news for BTC, but it might also bode well for some little-known cryptos that can jump even higher nearly every time Bitcoin does - 142% in 12 days... 330% in 82 days... 273% in 14 days. One rocketed 1,900% higher in just 62 days. Take a look at this chart...
Follow Money Morning on Facebook and Twitter.
About the Author
Tom Gentile, options trading specialist for Money Map Press, is widely known as America's No. 1 Pattern Trader thanks to his nearly 30 years of experience spotting lucrative patterns in options trading. Tom has taught over 300,000 traders his option trading secrets in a variety of settings, including seminars and workshops. He's also a bestselling author of eight books and training courses.