Impressive price and volume action Tuesday is consistent with the resumption of the intermediate term uptrend and Moneyshow's Tom Aspray has five stocks in the hottest sectors that may reach their buy levels before Christmas.
The strong market internals again Tuesday along with heavier volume indicates a sustainable new uptrend is underway. This is in sharp contrast to the post-election mood when many concluded that the fundamentals were warning of a weak economy if not a new recession.
From a technical perspective the action of the stock market since the June lows has been suggesting that the economy was actually doing better than most expected. It was just two weeks ago when the mixed economic data raised more concerns about the stock market from the fundamental analysts.
Especially impressive on Tuesday was the volume in many individual stocks as it was the highest in many weeks and confirmed that there was real buying to accompany the impressive price action. This favors more gains as we head into 2013 but there are clearly going to be setbacks along the way especially until a deal is reached on the fiscal cliff.
New buying now should be focused, I believe, on stocks in the strongest sectors as the Select Sector SPDR Financial (XLF) and the Select Sector SPDR Consumer Discretionary (XLY) are beating the yearly performance of the Spyder Trust (SPY) by a wide margin. Health care also looks strong as the Select Sector SPDR Health Care (XLV) is up 1.5% in the past two days.
In reviewing the current Charts in Play Portfolio that now includes the small-cap plays I discussed last week, I wanted to focus on new financial and health care stocks to add to the portfolio. These picks have impressive volume action, which favors even higher prices.
Click to Enlarge
Chart Analysis: Unum Corp. (UNM) is a $5.85 billion accident and health insurance company that has current yield of 2.5%. The daily chart shows Tuesday's close just barely above the resistance at line a.
- A completion of the recent trading range has initial upside targets in the $23 area, with the early 2012 high at $24.81
- There is longer-term resistance at the 2008 high of $29.86.
- The relative performance broke its downtrend, line b, in late October as it started a new uptrend.
- The daily on-balance volume (OBV) closed above resistance, line d, that does back to August.
- There is initial support at $20.55 and rising 20-day EMA with further support in the $20 area.
- The quarterly pivot line is at $19.56 (see chart), which represents important support.
- The weekly OBV and RS lines (not shown) are both above their WMAs.
Life Technologies Corp. (LIFE) is an $8.9 billion global life sciences company. Tuesday's close above the resistance that goes back to late 2011, line e, was five times the average volume.
- The all time high at $57.25 was made in the first quarter on 2011.
- The major 127.2% Fibonacci retracement target is at $63.23.
- The relative performance bottomed last summer and shows a solid uptrend, line g, over the past few months.
- The daily OBV bottomed last June and also shows a well-defined uptrend, line i.
- The OBV broke through strong resistance, line h, just over a week ago.
- The recent pullback reached the $49.16 level, with further support now at $48.60.
- The quarterly pivot line at $46.69 was tested in November.
Northrop Grumman Corp. (NOC) is a $16.82 billion dollar aerospace/defense company that is part of the industrial sector.
- The correction from the October 2012 high at $71.25 just violated the 50% Fibonacci support at $64 as it made a low of $62.80.
- There is resistance from 2011 at $72.50 and then at $85.21, which was the late 2007 high.
- The daily relative performance made new highs in October and has just moved back above its WMA.
- The RS line has good support at line b
- The daily OBV moved through its resistance last week, pulled back to the breakout level before turning higher Tuesday.
- There is initial support at $66.56, which is the quarterly pivot with stronger at $64.80-$65.50.
US Bancorp (USB) was one of the Twitter recommendations I made yesterday. It currently yields 2.4% and the monthly chart analysis looks very strong as it broke through major resistance, line d, in March.
- The monthly trading range (lined d and e) has upside targets in the $38-$40 area.
- The monthly starc+ band is at $38.90.
- The monthly relative performance confirmed the March breakout and has now pulled back to its WMA.
- The monthly OBV has held very strong on the recent pullback as it is very close to its all-time highs and well above its uptrend, line g.
- There is minor support now at $31.80 and then further in the $30.90-$31.30 area.
What it Means: So far it has been a good week for stocks and a strong weekly close will further support my view that investors should Stuff Those Stockings with Stocks. Two of these stocks are in the financial sector with one health care and one industrial stock.
Though stocks could accelerate to the upside if a deal on the fiscal cliff is reached, I would not chase stocks and still look for slight pullbacks to buy. It is still important to keep your eye on the risk on any new purchases. In the December 7 update on the Charts in Play portfolio I raised some stops, and I am now adjusting them further, as well as updating for new positions.
How to Profit: For Unum Corp. (UNM), go 50% long at $21.12 and 50% long at $20.86, with a stop at $19.89 (risk of approx. 5.2% ).
For Life Technologies Corp. (LIFE), go 50% long at $51.04 and 50% long at $50.48, with a stop at $47.36 (risk of approx. 6.7% ).
For Northrop Grumman Corp. (NOC), go 50% long at $68.02 and 50% long at $67.52, with a stop at $65.48 (risk of approx. 3.3%).
From yesterday's tweet: Buy US Bancorp (USB) at $31.94, with a stop at $30.83 (risk of approx 3.4%).
Buy McDonald's Corp. (MCD) at $89.58 or better, with a stop at $87.22.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.