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Melvin Pasternak
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Dr. Melvin Pasternak bought his first stock, IBM, in 1962 when he was a teenager. He is the author of "21 Candlesticks Every Trader Should Know," a book on how to use Japanese candlestick charts to trade effectively. For nearly five years, he wrote a very successful newsletter... More
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  • Short This Medical Device ETF for Potential +11.6% Returns
    The medical device sector is still reeling from the healthcare reform bill.

    Slapped with a 3% tax increase effective January 2013, many medical device manufacturers and distributors such as Medtronic (NYSE: MDT) and Stryker (NYSE: SYK) fear future sales and earnings growth will be limited. These companies will be impacted by the levy and incur high costs to obtain regulatory approval on new products.

    The iShares Dow Jones U.S. Medical Devices Index Fund (NYSE: IHI) is an exchange-traded fund (NYSEMKT:ETF) that seeks to replicate the performance of the medical device sector.

    Currently, there are 42 medical device manufacturing and distributing companies held in the fund. Top holdings include Medtronic at 10.2%, Thermo Fisher Scientific (NYSE: TMO) -- 7.3%, and Stryker Corp -- 6.2%.

    Technically, IHI seems at an important turning point -- a major correction could be looming.

    On Friday, April 30th, the fund hit a 52-week high of $60.75. It also encountered long-term historical resistance near this level, and dropped about $4 this week in conjunction with the overall market decline.

    The shares have broken the major uptrend line that began in March 2009 when they hit a low of $31.43. IHI has also fallen below its 10-week moving average and is perilously close to falling below its 30-week moving average which currently intersects at 54.21. There is some support near $51, the intersection of the lower Bollinger band, but more substantial support is near $47.50 -- a level approached during the panic decline Thursday.

    The indicators are mixed, but have a bearish tinge.
    • Since mid-March, MACD has been essentially flat, but now appears to be on the verge of giving a sell signal. The MACD histogram has inched into negative territory.

    • The relative strength index (RSI) -- which bottomed in mid-November 2009 -- was in an uptrend until this past week. This week it plunged and is in near freefall after having corrected to 53.7.

    • P/E ratio of nearly 30. In comparison, the iShares Dow Jones U.S. Healthcare Sector Index Fund (NYSE: IYH), which seeks to replicate the performance of U.S. healthcare stocks, has a P/E of less than 20.
    Given that IHI appears richly valued and technically vulnerable, I believe the fund could be a great short opportunity.


    Disclosure: No positions
    Tags: MDT, SYK, IHI, TMO, IYH, medical etf
    May 12 2:51 PM | Link | Comment!
  • Get Your Fair Share of the Pie with this Tech ETF
    With Apple (Nasdaq: AAPL) going gangbusters and lifting many other tech firms with it, the S&P Global Technology Index Fund (NYSE: IXN) may be a great idea.

    IXN's assets are weighted toward large-cap global tech companies. Other top holdings include Microsoft (Nasdaq: MSFT), IBM (NYSE: IBM) and Google (Nasdaq: GOOG). The fund is also comprised of big-name international computer hardware, software, semiconductors, Internet and IT service firms. The holdings in this exchange-traded fund (NYSEMKT:ETF) collectively have a market cap of $2.9 trillion (as of December 31, 2009).

    There are other large-cap technology ETFs that seek to replicate the performance of the information technology sector, but IXN is unusual because of its strong international focus. Of the 118 companies currently in IXN's portfolio, 25% are located abroad, primarily in Japan, Taiwan and South Korea. This international diversification means the ETF would be less affected then a purely domestic fund if there were a drop in U.S. tech spending.

    The ETF has a minimal yield of 0.4%. At 0.48%, the ETF has a slightly lower expense ratio than other high tech funds like the SPDR S&P International Technology (NYSE: IPK) or WisdomTree International Technology (NYSE: DBT).

    • From a technical perspective, IXN appears bullish. Since forming a double bottom formation just above $30 between November 2008 and March 2009, the fund has gained nearly +100%.

    • In the last week of March 2010, IXN broke through resistance near $57.50 and completed a bullish ascending triangle that has formed since late December 2009.

    • IXN is above its rising trendline currently at about $56 as well as the 10- and 30-week moving averages, which are curling upwards.

    • The security is also climbing the upper Bollinger band. The next major resistance is the Spring 2008 peak just below $64.

    • The indicators confirm IXN's bullish status. MACD has just given a buy signal. The MACD histogram is inching into positive territory.

    • RSI has been on a sustained uptrend since November 2008. While RSI appears as if is about to become overbought, it is not there yet.

    • Stochastics shows the ETF is overbought; however, strong securities can remain overbought for extended periods of time. Stochastics remains on a buy signal.
    With the positive hype around Apple and the tech sector, I want to get my fair share of the "apple" pie. My target is $63.95, just below resistance. I would consider setting a stop loss at $56.45, just below support provided by the major trendline.


    Disclosure: No positions
    Tags: IXN, AAPL, MSFT, IBM, GOOG, IPK, tech etf
    Apr 13 11:08 AM | Link | Comment!
  • You Could See +19% Gains With This Pharma ETF
    The intensely debated health care legislation has become law.

    Traders now speculate on how the bill impacts the health care sector. Of the winners and losers, the pharmaceutical companies have come out near the top. Over several years, they will pay $90 billion to help offset the costs of health care reform. But in return, they'll see huge benefits, including a huge influx of new paying customers.

    This is because roughly 32 million new people will now be able to pay for prescription medications through insurance coverage. And, numerous seniors will be able to use Medicare to fill prescriptions that were too costly in the past.

    Lucrative biotech drugs -- which are more costly for companies to develop because they are made from living cells instead of chemicals -- have been granted 12 competition-free years. This is a huge victory for the biotech industry against the generic drug makers, which had been pushing for seven years. The result should translate into higher profit margins for biotech firms.
     
    These are just some of the reasons I like the SPDR S&P Pharmaceuticals (NYSE: XPH) exchange-traded fund (NYSEMKT:ETF).

    The ETF contains 25 pharmaceutical companies. About 70% of the companies in this fund are mid- and small-cap stocks. Top holdings are giants like Johnson & Johnson (NYSE: JNJ) and Pfizer (NYSE: PFE), but it also includes smaller companies like Perrigo (Nasdaq: PRGO), Impax Laboratories (Nasdaq: IPXL) and Valeant Pharmaceuticals (NYSE: VRX). The fund has a net asset value of nearly $90 million.

    XPH seeks to replicate the performance of the S&P Pharmaceuticals Select Industry Index. Fundamentally, it is in line with the index. Both XPH and the index have a forward one year price to earnings (P/E) ratio of 13.2, both have an estimated three to five year earnings per share (NYSEARCA:EPS) growth rate of +16.4%.

    But where XPH really shines is in its technical signals.

    As the chart below shows, XPH is on a tear. It has been on a steady uptrend since hitting a low of $23.35 in March 2009. From this low, it has gained more than +80% to date.


    • At the beginning of March 2010, XPH shot past resistance near $40 on high volume. Currently at $41.97, XPH is near its highest point since inception in June 2006. The fund remains well above trendline support, which is just below $40.

    • XPH is above its rising 10- and 30-week moving average; because of the December 2009 to February 2010 consolidation, it is not over-extended.

    • The indicators confirm the positive trend. MACD has just given a buy signal. The MACD histogram is expanding into positive territory.

    • The relative strength index (RSI) has been on a steady uptrend since October 2009. Although RSI shows the ETF is overbought, strong securities can remain overbought for extended periods of time.

    • Stochastics confirms that XPH is overbought. However, it remains on a buy signal, giving further credence to the fact that strong securities can remain overbought for long periods.
    With no resistance in sight, this security can soar. I am setting my target at $49.95, just below the round resistance number of $50. My stop-loss is $36.25 -- below trendline support and the December to February consolidation.

    Action to Take: Based on the analysis above, here's how I plan to trade XPH:
    • Purchase XPH on Monday, March 29th

    • Set the stop loss at $36.25

    • Target price = $49.95

    • Potential Profit = +19.0%


    Disclosure: No positions
    Mar 30 10:31 AM | Link | Comment!
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