Best action is in Gold and the Semis
The action that I was watching for at
the beginning of the week last week occurred shortly after my mention
of the need for a reversal. The Gold Continuous chart ($GOLD) pulled back and
then reversed directly back to Xs. This didn’t allow much time for action, and,
a quick review of the point and figure charts of the stocks in the precious
metals sector reveals that many of them are still overbought.
A stock that still shows some potential because it is far
enough away from its’ price objective is Agnico Eagle Mines, Ltd.
(
AEM |
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PowerRating). Its
current price is $21.75 and a vertical count price objective for the stock is
$31.50. For those interested, the price objective is calculated as follows: {3*
number of Xs in the column for the buy signal that breaks the resistance (12)
divided by 2, plus $13.50 (the bottom of this portion of the chart)}. The
initial demand for the stock should reflect future demand. What is also
interesting about this chart is the fact that it broke out from a large trading
range just in December.
This stock would be a recommendation for an aggressive trader
as there is not good stop. I would use the 50-day exponential moving average,
$18.34 as the closest, most reasonable stop. You could also use $17.00, the
first point and figure stop. However, all in all, the sector is still
overbought.
Some interesting things happened with Semiconductors last week. I have been
watching the sector slowly improve for about three months. Finally, and for the
first time since May of 2003, the Bullish Percent chart for Semiconductors has
gone above the 50% level. This is quite significant as, if you follow this
sector at all; you know that there have been many false starts. A push above the
50% level on its’ Bullish Percent chart is a definite step in the right
direction.
A bullish percent chart measures the percent of stocks within
the sector/market that are giving new point and figure buy signals (a column of
Xs rises above a previous column of Xs). When 6% of the stocks move from being
on sell signals to being on buy signals, then the bullish percent chart will
reverse from going down (Os) to going up (Xs). The Bullish Percent chart for
Semis reversed to Xs back in October.
However, the chart has been able to reverse back to Xs in the
recent past without showing much momentum to the upside. The push through 50% is
significant as that is often a level that technicians watch for a sign that
things have improved enough for new purchases. In addition, the
(
SOX |
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PowerRating)
(Philadelphia Exchange Semiconductor Index) is outperforming all of the sectors
indexes that I follow except for the CBOE Gold Index
(
GOX |
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PowerRating). A stock that
looks good in the sector is Varian Semiconductor Equipment Associates
(
VSEA |
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PowerRating).
Sara Conway is a
registered representative at a well-known national firm. Her duties
involve managing money for affluent individuals on a discretionary basis.
Currently, she manages about $150 million using various tools of technical
analysis. Mrs. Conway is pursuing her Chartered Market Technician (CMT)
designation and is in the final leg of that pursuit. She uses the Point and
Figure Method as the basis for most of her investment and trading decisions, and
invests based on mostly intermediate and long-term trends. Mrs. Conway
graduated magna cum laude from East Carolina University with a BSBA in finance.