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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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Charts in Play
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  • Top Stocks From One Of The Biggest Bulls

    Another day of solid buying and the sharp increase in housing starts gave the homebuilding stocks a boost, which helped the overall market. The A/D lines for the NYSE Composite, S&P 500, Nasdaq 100, and the Dow Jones Industrials have now broken their downtrends. Maybe the Wall Street pros realized that too many of them were bearish or cautious on the stock market and started buying.

    The A/D line on the Nasdaq 100 has confirmed the new price highs as the PowerShares QQQ Trust (QQQ) is now close to monthly projected pivot resistance at $99.27 and its daily starc+ band. The McClellan oscillator has risen to +195, which is the highest reading since February 18. The oscillator action is likely a sign of strength so a pullback is likely to be a buying opportunity.

    So what should one be buying? In last week's Barron's, there was an interesting interview with Stephen Auth, the investment officer, equities, at Federated Investors whose staff manages about $50 billion of assets.

    Mr. Auth was one of the few who was bullish at the end of the 2012 and he "expects the Standard & Poor's 500 to reach 2500 in the next 18 months to two years." This is based on his expectation that "the US economy is poised to grow even faster, possibly at a 3.5%-to-4% clip."

    There is an in-depth review of his rationale in the article and he provided Barron's with four stocks he likes: Devon Energy (DVN), Google, Inc. (GOOG), Textura Corporation (TXTR), and LyondellBasel Industries (LYB).

    I will concentrate on the three stocks that are closely tied to the strong material sector.

     

     

    Click to Enlarge

    Chart Analysis: The weekly chart of the Select Sector SPDR Materials (XLB) does not reflect Tuesday's new closing high at $50.37. It is up 9.93% YTD versus 8.41% for the Spyder Trust (SPY). It has over 10% in Dow Chemical (DOW) and Monsanto Company (MON).

    • XLB has bounced from the rising 20-week EMA and the quarterly pivot at $48.41.
    • The monthly pivot resistance is at $50.94 with the weekly starc+ band at $51.97.
    • The quarterly projected pivot resistance is at $52.57.
    • The weekly relative performance is back above its WMA but has not yet made new highs.
    • The daily RS line has moved back above its WMA but is still below its prior high.
    • The weekly OBV made new highs last week as it was leading prices higher.
    • It held above its WMA on the recent pullback.
    • There is short-term support and the rising 20-day EMA at $49.57.

    Devon Energy (DVN) is a multi-faceted energy company that is 8.95% below its 52-week high but still is up over 22% for the year.

    • The week ending July 4, DVN formed a doji and the following week it triggered an LCD sell signal.
    • The weekly chart shows that DVN approached its weekly starc- band two weeks ago with its low at $71.48.
    • This was just below the 38.2% Fibonacci retracement support.
    • The weekly starc- band is now at $69.98 with the 50% support level at $69.
    • The weekly relative performance did confirm the new highs in early July and the weekly starc+ band was reached a few weeks before the highs (see arrow).
    • The RS line has now broken its uptrend, line f, and is below its WMA.
    • The weekly on-balance volume (OBV) also confirmed the highs but is now below its WMA.
    • The daily studies (not shown) have turned up but are still negative.
    • The declining 20-day EMA is at $75.01 with stronger resistance in the $77 area.

     

    Click to Enlarge

    LyondellBasell Industries NV (LYB) is a broad-based chemical company that Mr. Auth believes will benefit from low natural gas prices.

    • It made a new high on Tuesday and is very close to its quarterly projected pivot resistance at $112.89 as well as the daily and weekly starc+ bands.
    • The daily RS line broke through its resistance, line c, on July 17 when LYB closed at $99.53.
    • The RS line has stronger support at line d.
    • The weekly relative performance (not shown) is also above its WMA and confirming the price action.
    • The daily OBV also turned positive in the middle of July and then overcame long-term resistance at line e, last week.
    • There is initial support now in the $110 area with the monthly pivot at $104.57.

    Textura Corporation (TXTR) is a $759 million application software company that facilitates the interaction between owners and developers of commercial real estate. Therefore, it is tied to the construction industry, which is part of the materials sector.

    • The daily chart shows that the downtrend, line g, was broken in early August.
    • The 50% Fibonacci retracement resistance from the October 2013 high of $47.25 is at $30.52.
    • The key 61.8% retracement resistance stands at $34.46.
    • The daily relative performance broke its downtrend, line h, in the latter part of June.
    • The RS line shows a shallow uptrend, line I, and is holding above its WMA.
    • The weekly relative performance clearly indicates this is a market leading stock.
    • The daily OBV bottomed in early May and moved through its downtrend (line j) at the end of the month.
    • It turned up again Tuesday and still is acting positive.
    • There is initial support at $27.28 and the 20-day EMA.
    • The monthly pivot is at $25.82 with further support at $24.10.

    What it Means: I also like the materials sector and the Select Sector SPDR Materials (XLB) is part of the Charts in Play Portfolio.

    Of the three stocks, I only have a buying strategy for Devon Energy (DVN) which was featured in last month's Red Flags from Weekly Charts. It appears to be in the process of bottoming but one more new low is possible first.

    LyondellBasell Industries NV (LYB) was featured in the January 2013 article 4 Best Next Boom Stocks and, while it still looks positive, it is in a high risk buy area.

    Textura Corporation (TXTR) also appears to have bottomed but a stop would need to go below $24 currently, which makes the risk too high. Will be looking for a better risk entry.

    How to Profit: For Devon Energy (DVN) go 50% long at $72.42 and 50% long at $70.08 with a stop at $68.57 (risk of approx. 3.7%).

    Correction to yesterday's portfolio: The correct stop for Phillips 66 (PSX) should be $78.33.

     

    Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Tags: XLB, SPY, LYB, DVN, TXTR
    Aug 21 9:40 AM | Link | Comment!
  • Stops Protect Portfolio Profits

    The impressive rebound in both the Euro zone and US markets have caused further improvement in the market's outlook as the A/D ratios were better than 3-1 positive. The volume analysis has continued to lag but nevertheless it appears that the worst of the selling is over.

    While there has been a slight pickup in overall market volatility, it has been a tough earnings season for those stocks that disappointed investors with their earnings. It was not only those stocks that missed earnings estimates but also those that were positive but not as good as some expected.

    In the most recent trading lesson Three Reasons To Sell, I took a look at some of the technical signs that I look at as a stock is about to report earnings. They can help me decide to reduce the size of my position in any one stock or raise the protective stops. In some instances, there were not clear warning signs and quite a few stocks were stopped out at levels that were lower than I would have liked.

    The sharp decline in the Euro zone markets took out the portfolio position in one of the portfolio's core ETF holdings, the Vanguard FTSE Europe (VGK). Those that began a dollar cost averaging program in this and two other large ETFs, as I recommended at the end of May, should stick with their long positions.

    Let's take a look at some of the portfolio hits and misses over the last month.

     

     

    Click to Enlarge

    Chart Analysis: The Spyder Trust (SPY) closed back above the $197 level as the former uptrend has been reached.

    • The SPY had gapped through this support on July 31 (point 1) as several different levels of support were quickly violated.
    • The SPY eventually tested the 38.2%-50% support zone.
    • The monthly projected pivot support at $191.02 was violated with a low of $190.55.
    • The negative divergence in the S&P 500 A/D line (line a) had warned of the correction in advance.
    • The A/D line has now moved back above this resistance, which is a sign that the correction is already over.
    • I would look for the A/D line to test its WMA on a pullback.
    • The OBV is still acting weak as it still slightly below its WMA.
    • The OBV is still holding above more important support.
    • Next resistance at $198.59 and the daily starc+ band with the all time high at $RE199.06.
    • The monthly projected pivot resistance is at $201.13.

    Expedia, Inc. (EXPE) was recommended in late May and the strategy was reviewed in my trading lesson Advanced Entry Techniques for Any Market.

    • The monthly projected pivot resistance at $84.68 has been overcome.
    • The quarterly pivot resistance is at $89.05 with the weekly starc+ band at $91.05.
    • The weekly chart shows a steady rise form the May lows.
    • The daily relative performance bottomed out in May and the weekly moved through resistance in the middle of June (see arrow).
    • The RS line is still acting well and is well above its WMA.
    • The weekly OBV moved through its downtrend, line f, at the end of May.
    • It still looks positive as it is well above support at its uptrend (line g) and WMA.
    • The daily studies (not shown) have confirmed Monday's new high.
    • There is initial support now in the $82.50 and $83.12 area, which corresponds to the 20-day EMA.

     

     

    Click to Enlarge

    The strong close in the iShares Dow Jones Home Construction ETF (ITB) above $25 in early July was confirmed by the daily OBV. Monday's Housing Market Index was a positive for this industry group.

    • The ITB reversed the following week and dropped back to its weekly starc- band.
    • The ITB close at $23.83 on Friday, July 11 was below the quarterly pivot at $24.22.
    • It had a correction low of $21.96 on August 1.
    • ITB has rebounded from the lows over the past few weeks and is now testing its 20-week EMA.
    • The daily RS line appeared to complete its bottom in early July but the weekly did not.
    • The weekly RS line just tested its WMA before dropping through support on July 11.
    • The weekly and daily OBV were both positive in June but subsequently reversed to the downside.
    • The weekly OBV has now moved back to its WMA while the daily is slightly positive.
    • The quarterly pivot is now at $24.20 with further resistance at $24.50.

    United Parcel Service, Inc. (UPS) was recommended in early March (point 1) and dropped to a low of $94.17 in early April before it turned higher.

    • The positive weekly signals were confirmed by early May as it rallied to a high of $103.43.
    • The support at $100 held on the pullback and UPS made a new high of $104.36 on July 16.
    • UPS plunged in reaction to its earnings as it opened at $99.58 on July 29 well below the stop at $101.36.
    • UPS has had a low this month of $94.21.
    • The daily RS line did form a lower high in July, line g.
    • The support at line h was not broken until UPS gapped to the downside.
    • The daily OBV did confirm the price highs and dropped below its WMA on July 29.
    • UPS has rallied back to its declining 20-day WMA but the weekly studies are now negative.

    What it Means: The quickness of the decline in the Spyder Trust (SPY) caught me by surprise as my order to sell half at $199.17 was just missed as the high was $199.06. I thought I would get a further chance to take partial profits as clearly a 4.8% profit was not enough.

    I am watching Expedia, Inc. (EXPE) closely and hope to take some profits on a move to the quarterly pivot resistance.

    The biggest drain on the portfolio since the middle of July has been in the homebuilding sector as these stocks really disappointed the market with their earnings. This has been a good industry group for me in the past but took too large a position.

    Though the closed positions resulted in just over a $6000 profit I am not happy with the results.
    The good news is there is plenty of cash to invest as we enter the more stock-friendly fall months. Before I become a more aggressive buyer I want to see confirmation of a new uptrend in the A/D lines and improvement in the OBV.

    How to Profit: No new recommendation.

    Portfolio Update: For the Spyder Trust (SPY), longs established at $185.02, stopped out at $193.90.
    For Expedia, Inc. (EXPE) long from $72.41 raise the stop now to $81.88.
    Sell 1/3 at 88.77 or better.

    Long positions in the iShares Dow Jones Home Construction ETF (ITB) from $24.90 stopped out at $23.67.

    Longs in United Parcel Service, Inc. (UPS) from $96.66 stopped out at $99.58.

    NEXT PAGE: The Charts in Play Portfolio

    Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Tags: SPY, UPS, EXPE, ITB
    Aug 20 7:27 AM | Link | Comment!
  • No One Loves The Banks, Should You?

    Asian markets were mixed Monday but the buyers appear to have taken over as many of the Euro markets are up over 1% in early trading. The US futures are also acting strong in early trading.

    After last week's action only the Nasdaq 100 A/D line was able to signal that the correction was over. All of the other major averages are now testing strong resistance levels with short-term support to watch at last Friday's lows.

    The sentiment picture is mixed as-while the individual investors turned more bullish last week-there are signs that the institutional strategists and fund managers have turned more negative on stocks. They are recommending a relatively low commitment to stocks which, in the past, has correlated with stock market bottoms.

    There is a full economic calendar this week culminating with the Fed Symposium at Jackson Hole on Friday where Fed Chair Janet Yellen and ECB President Mario Draghi are scheduled to speak.

    If the stock market is close to completing its correction, which industry groups or sectors will lead the market higher? Some are looking to the money center or regional banks that offer higher yields that the 10-Year T-Notes but is now the time to buy?

     

     

    Click to Enlarge

    Chart Analysis: The Select Sector Financials (XLF) has just slightly underperformed the Spyder Trust (SPY) over the past three months.

    • On a YTD basis, the XLF is up 4.08% versus a 6.98% gain in the SPY.
    • The weekly uptrend, line a, was tested two weeks ago as it is trying to hold the quarterly pivot at $22.26.
    • On a drop below the recent low of $22.08, the weekly starc- band is at $21.57.
    • A weekly close above $23.10 will signal a rally to the quarterly projected pivot resistance at $24.08.
    • The relative performance has been below its WMA since early April.
    • The RS line shows a pattern of lower lows, line c, which is consistent with a sector that is weaker than the market.
    • The weekly OBV is acting much better as it moved back above its WMA last week.
    • The OBV has regained the uptrend from the 2013 lows (line e) and has held near term support at line f.
    • The volume last Friday was the heaviest of the week.

    The SPDR S&P Bank ETF (KBE) has 70% of its assets in regional banks and is up only 1.94% over the past three months. It has a current yield of 1.45% with an expense ratio of 0.35%.

    • On a YTD basis, it is down 4.08%, slightly over 11% worse than the SPY.
    • Two week's ago, KBE formed a doji but it failed last week to close above the doji high of $31.69.
    • The 20-week EMA is now at $32.40 with the quarterly pivot at $32.82.
    • The weekly chart shows that there is important support, line g, in the $30.60 area.
    • The relative performance completed its top formation at the end of April as the eight month support, line h, was broken.
    • The RS line has been forming lower lows (see arrow).
    • The weekly OBV formed a negative divergence at the March high of $34.91.
    • The divergence was confirmed in early May as the February support was violated.
    • The OBV has since formed lower lows as it has stayed below its declining WMA.
    • A weekly close above $34 is needed to turn the weekly chart around.

     

     

    Click to Enlarge

    Wells Fargo & Company (WFC) has closed below its uptrend, line a, for the past two weeks.
    WFC outperformed the SPY by 5.8% YTD but is lagging over the past three months.

    • WFC is now down 5.41% from its 52-week high of $53.08.
    • The weekly starc- band is at $48.12 with the 38.2% Fibonacci support at $47.56.
    • There is more important support in the $45-$47 area.
    • The relative performance did confirm the June highs but dropped below its WMA in early July.
    • The support at line b has now been broken as the RS line is in a downtrend.
    • The weekly on-balance volume (OBV) broke its uptrend, line c, on Friday July 11.
    • The OBV turned up last week but is still below its WMA.
    • The daily OBV (not shown) is still below its WMA.
    • The monthly pivot is at $51.27 with more important resistance at $51.94.

    US Bancorp (USB) has been lagging the SPY all year as it is now up just 3.33% YTD and is down 4.7% in the past month.

    • USB closed on the chart support at line e, with the quarterly projected pivot support at $40.74.
    • The May lows in the $39.60-$39.80 area represent more important support.
    • The relative performance diverged from prices at the June highs, line f.
    • The divergence was confirmed when the RS line dropped below the support at line g.
    • The daily RS analysis (not shown) is also negative as it has formed lower lows.
    • The weekly OBV has turned up from short-term support at line h, but is still below its WMA.
    • There is more important OBV support at line i.
    • The quarterly pivot is at $42.21 with stronger resistance at $43.10, which was the late July high.

    What it Means: The weekly relative performance analysis of the financial sector and banks continues to indicate they will underperform the S&P 500. Though the weekly OBV does look better, there are no strong positive signals yet from the daily studies.

    Wells Fargo & Company (WFC) has a current yield of 2.59% while US Bancorp (USB) yields a bit less at 2.27%. Both still have negative weekly and daily RS analysis which-in the current difficult market-outweighs the positive weekly OBV to buy for growth.

    They are probably a reasonable yield play given the improvement in the overall market outlook.

    Their dividends seem secure but one needs to risk to under the 1st quarter low for USB and the 2nd quarter low for WFC.

    How to Profit: No new recommendation.

    Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Tags: XLF, KBE, SPY, WFC, USB
    Aug 18 10:57 AM | Link | Comment!
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