Bottoms Up
The waiting game continued in the
tradable tech funds Thursday, although a number are building constructive
double-bottom bases.
The Consumer Services SPDR
(
XLV |
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PowerRating)
broke above a major downtrend line on rising volume. The fund got help from such
stocks as Viacom
(
VIAB |
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PowerRating), which gained 5.3% and Seagram
(
VO |
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beverage and entertainment provider was the subject of reports of merger talks
with French conglomerate Vivendi.
A number of tech funds are tracing
double-bottom bases with handles. The Broadband HOLDR
(
BDH |
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PowerRating), which began
trading April 6, gained 2.5%. In a proper double-bottom, or W, pattern, the
share price makes a first low, followed by a rally to an intermediate peak, then
a second lower low, which serves to clear out the weak holders. I’ve marked the
lows with red arrows.
Notice how the second low closed near
the session high as well as above the open and above the prior day’s close. And
volume picked up. All signs that raise the odds of a durable bottom.
The first pivot point is the
intermediate peak, which in the case of the Broadband HOLDR is located at 89
3/4. Another pivot, when the base forms a handle, is the high of the handle. In
this case, the handle high is at 89 9/16. Since they lie so close together, I
would probably let the stock take out the higher of the two by 1/8 before
entering a long trade.
You can see similar double-bottom
bases, or W patterns, with handles in other tradable tech funds, including the
Nasdaq 100 Tracking Stock
(
QQQ |
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PowerRating) and the Internet Architecture HOLDR
(
IAH |
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PowerRating).
The Nasdaq 100 Tracking Stock follows
the Nasdaq 100 Index
(
NDX |
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PowerRating) of the 100 largest-cap non-financial stocks on
the Nasdaq. The Internet Architecture HOLDR represents a fixed basket of shares
in such companies as Cisco Systems
(
CSCO |
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PowerRating), International Business Machines
(
IBM |
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PowerRating), Hewlett-Packard
(
HWP |
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PowerRating), Sun Microsystems
(
SUNW |
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PowerRating), Dell
Computer
(
DELL |
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PowerRating) and EMC
(
EMC |
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PowerRating). The tradable fund added 2.3%.
On the downside, the Financial SPDR
(
XLF |
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PowerRating)
lost 2.4%, the Dow Jones U.S. Financial Sector shares
(
IYF |
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PowerRating) 3.2%. The funds
were pressured by bank and financial stocks, which fell after an earnings
warning from Wachovia
(
WB |
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PowerRating).
