Looking For Signs
A bottom is
in the making? As I wrote in yesterday’s piece, I am
in consensus with the Goldman Sachs analysts that the Semiconductors sector is
nearing a bottom. Not because Goldman said so, but based on my observations of
the Asian markets, Taiwan in particular.
Going one step further on a broad
market look, I have noticed other signs that we could be closing in on a bottom.
As many of you know, the Utilities and Banking sectors are interest-rate
sensitive and have acted as leading indicators for the direction of the broader
markets.
If we look at the chart below of the
S&P 500, Utilities and Banking sectors, we see that the interest-rate
sensitive sectors have broken above their 40-week moving average. Still, until
we get further confirmation from other indicators such as breadth, follow-through
days, etc., we should trade with caution.
So at this time we should
also start to look for some turnaround plays in the semis and create a hefty
watch list of potential candidates to trade. I know I mentioned this article
before, but Loren Fleckenstein wrote an excellent lesson titled Selecting
And Trading Turnaround Stocks. Now
would be a good time to review the protocol.
Not much to look at on
the radar screen, however I did mention Hudson River Bancorp
(
HRBT |
Quote |
Chart |
News |
PowerRating) a
couple of commentaries ago. The stock broke out of multiweek cup-with-handle
pattern on lighter volume than what we would have liked to see.
Looking at the Exchange Traded Funds,
the Ishares Chemical Index
(
IYD |
Quote |
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News |
PowerRating) moved higher 2.8%.
The WEBS-Germany Benchmark
(
EWG |
Quote |
Chart |
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PowerRating)
scaled higher 2.0%
And the IShares Japan Index
(
EWJ |
Quote |
Chart |
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PowerRating)
moved higher after the Bank of Japan cut interest rates, boosting the Nikkei up
almost 4% in trading.
Losing ground was the Internet HOLDRs
(
HHH |
Quote |
Chart |
News |
PowerRating) which fell 4.5%. The fund is in the midst of forming a multi-week
inverted cup.
The WEBS-Canada Benchmark
(
EWC |
Quote |
Chart |
News |
PowerRating)
slid 3.0% due to a weak job report for July. The data showed employment for the
country fell for the second straight month. This type of report could lead the
Bank of Canada to cut rates at the end of August.
Also shedding points was the B2B
Internet Holdrs
(
BHH |
Quote |
Chart |
News |
PowerRating) as the fund closed lower by 2.3%.
The Telcom Brasileiras
(
TBH |
Quote |
Chart |
News |
PowerRating) fund
still looks vulnerable due to the Argentina debt crisis. The fund is in a low
volatility situation and in today’s session has made an NR4 day.
Remember that all securities are
risky. In any trade, you should always reduce your risk by adjusting position
size and placing open protective stops where you will sell your long or
cover your short in case the market turns against you. For an introduction to
combining price stops with position sizing, see Loren Fleckenstein’s lesson, Risky
Business.