Thank you to one of our readers for commenting on UYG. It's tempting to dive into the "cheap" financial stocks, but it's premature from a technical standpoint. The chart of UYG (an Ultralong financial ETF), shows that the financial stocks remain within the throes of a downtrending channel, trading below a downtrending moving average.
It's no suprise that most of the financial stock's charts look similar. Check out the charts of MER, C, GS, MS, PJC, BAC, too many to list... all locked in a downtrend.
We'd like to see a decisive break through the top of the channel and the moving average before even considering that financials may have seen a bottom. Until then, we have no interest in any of these names.
We've used a 75dma on this chart. While it is not typical, you must use a moving average that matches the stock's chart, just skimming over its peaks (or under its valleys). Once the 75dma gets conquered, then we'll look for a break above the 100dma. It isn't until a stock is trading above an uptrending moving average that it is in an uptrend. Just trading above its moving average is not enough. The moving average must turn upward itself.
We would much rather wait for confirmation and risk losing the beginning of the eventual rally in the financials than get in prematurely. As far as we're concerned, the financials are in just as bad shape as they've ever been, and we see nothing but further downside until the current trend is broken. Citigroup (C) reports tomorrow morning. It will give the sector direction, for better or worse.
4 comments:
Other than ag, which may be somewhat top heavy, is there any other sector that partially attracts you? Tech? Materials? Metals? Telecommunications? Health? Etc. and so forth?
During a correction, you can see which sectors will emerge as the leaders based on their resistance to decline and how quickly they make new highs afterwards.
While solar and tech is doing well lately, it was clearly not being accumulated during the market selloff, and with some exceptions, remains far from new highs.
Given that criteria, we are only attracted to energy, Ag, and steel.
Of the three, Ag has the most sustainable story, so we gravitate towards it. Energy prices and demand for steel can turn on a dime, so we are leary of those sectors. As much as we liked DRYS in its heyday, we were always leary of how impactful (and unpredictable) the BDI was on the sector.
If you have time, please look at VIS and VAW for ETFs of two sectors that appear to be in an uptrend to me. I'm in both of those ETFs now. I prefer ETFs so that I don't have to watch out for earnings reports. The disadvantage is that one doesn't own best-of-breed, as you try to do. But for a less than full-time trader, their advantages are worth it to me. The Vanguard ETFs have low fees comparatively. They have low volume which means that you need to be careful when buying or selling them because the bid/ask spread can greatly benefit you or cut into your profits. Sometimes I will have a buy or sell order placed the night before good-to-cancel and it will fill at a very attractive price at the opening due to the wide bid/ask spread. Of course, that sometimes works for any equity.
Snot, do you have a relatively simple explanation for the bullish percentage charts and their significance for various sectors, especially for someone focusing on sectors, either short or long, whether via ETFs or individual equities?
http://stockcharts.com/def/servlet/Favorites.CServlet?obj=msummary&cmd=show,iday[Y]&disp=SXA
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