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Tom Aspray, professional trader and analyst was originally trained as a biochemist but began using his computer expertise to analyze the financial markets in the early 1980s. Mr. Aspray has written widely on technical analysis and has given over 60 presentations around the world. Many of the... More
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  • Is Your Portfolio Well-Positioned? 0 comments
    Mar 13, 2014 1:00 PM | about stocks: KRE, SMG, BAX, LEN, XHB

    The lack of much economic data so far this week has likely helped to reduce the volatility from last week and there were signs late Wednesday that the selling was starting to dry up. The S&P futures made their lows in the first 30 minutes of trading and then spent the rest of the day edging higher.

    The futures are higher early Thursday ahead of jobless claims and retail sales data that may weigh or boost the market. A strong close Thursday will suggest that the recent correction is over. Since the sharp market correction in early February, there have been quite a few stocks that looked like attractive additions to the Charts in Play portfolio.

    Since late January, 11 new positions have been added to the portfolio, and quite a few orders are still active. I continue to focus on stocks in those sectors which have the best relative performance analysis and are outperforming the overall market.

    A technical review of the market, as well as three of the recent recommendations, should provide some additional insight that will help others with their portfolios.


    Click to Enlarge

    Chart Analysis: The daily chart of the NYSE Composite shows the recent four day correction, with the market closing well above Wednesday's lows.

    • The rising 20-day EMA at 10,367 has been tested with the daily starc- band at 10,298.
    • The chart shows stronger support, line a, in the 10,241 area with the monthly pivot at 10,200.
    • There is initial resistance now at Tuesday's high of 10,503.
    • The McClellan oscillator has been diverging from prices, line b, since early February.
    • It has now dropped to -65 and is not far above the recent lows at -173.
    • The NYSE Advance/Decline did make a new high on March 6 and is now testing its rising 20 day EMA.
    • The action of the A/D line is currently consistent with a pullback not the formation of a top.
    • There is further support for the A/D at line c, and there is longer term support for the A/D line now at line d.

    The SPDR S&P Regional Bank (KRE) was part of my February 25 focus on the regional banks as the slight pullback hit the initial buy level (see arrow).

    • KRE hit a high of $41.47 last week, which was just above the monthly projected pivot resistance at $41.10.
    • So far, the pullback has been mild, with the 20-day EMA $39.91 and further support at $39 (line e).
    • The break of the relative performance's steep downtrend and its WMA supported the buy recommendation.
    • The daily OBV dropped sharply below its gradually rising WMA (see arrow) before it reversed and moved through resistance at line h.
    • The daily OBV did confirm the recent highs but the weekly (not shown) is still below its WMA.
    • The daily starc+ band is now at $42.14 with the weekly just slightly higher.
    • The upside targets from the weekly chart formation are in the $44-$45 area.

    chartchart
    Click to Enlarge

    Scott's Miracle-Gro Co. (SMG) is a well-known company that is part of the materials sector. It was also recommended in late February (see arrow).

    • The rally from the doji low at $55.94 took SMG above its daily starc+ band last week.
    • It did close on Friday above the quarterly pivot at $58.86.
    • The daily starc+ band is now at $60.48 with the weekly at $62.16.
    • The January high was $62.90 which is the next upside target.
    • There is initial support at $58.04 and the 20-day EMA.
    • There is more important support at the March 3 low of $56.30 and the stop has been raised to just under this level.
    • The daily relative performance appears to have completed a bottom, line c, as it is now in an uptrend.
    • The daily OBV has dropped back below its WMA and now needs to move above resistance at line d, to complete its bottom formation.

    Baxter International (BAX) was a health care recommendation from March 3 and it is currently trading 1.4% below the recommended entry price.

    • The weekly chart shows that the uptrend, line f, is now being tested.
    • The close this week may be important as a weekly close above the 20-week EMA at $68.48 would be positive.
    • The weekly downtrend, line e, is at $69.55 with the starc+ band at $72.44.
    • The relative performance made a new low last week and is still below its WMA.
    • There is longer term resistance at the downtrend, line g.
    • The weekly on-balance volume (OBV) does appear to have bottomed as the higher lows led to a move above its WMA.
    • The downtrend, line h, has been broken and a higher close this week would create a bullish formation.
    • There is initial support now at $67.01 with the monthly projected pivot support at $66.77.
    • There is more important support at the February low of $65.97.

    What it Means: The action in the last two days of the week will give us a better idea whether the correction is over or not and will also be important for the recent positions in Scott's Miracle-Gro Co. (SMG) and Baxter International (BAX).

    Even though I have a positive intermediate term outlook for the stock market, I also continue to take profits on existing positions as part of my regular money management strategy. I typically will recommend selling a part of a position if I am fortunate enough to get a quick profit or if it has a substantial double digit gains.

    For example, Lennar Corp. (LEN) was recommended last September at an average price of $33.11 and my stop barely held during the stock's correction in November. In last month's review the stock closed at $41.85 and was up over 26% from the entry level.

    I therefore recommended selling 1/3 at $43.22, which was a price level determined by the starc bands analysis, quarterly projected pivot resistance at $44.92, and the high last May 25 at $43.55.

    On February 26, LEN surged to a high of $44.36 and hit the selling zone. Hope this explanation answers some of your questions about my strategy.

    I still like the homebuilding sector and SPDR Homebuilder ETF (XHB) has retraced 38.2% of its recent rally and is now recommended.

    How to Profit: For the SPDR Homebuilder ETF (XHB) go 50% long at $33.02 and 50% long at $32.57 with a stop at $31.75 (risk of approx. 3.2%).

    NEXT: The Charts in Play Portfolio

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Stocks: KRE, SMG, BAX, LEN, XHB
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