Market Hubbub

Open any financial website or periodical and you can find plenty to read relative to the price of gold. Why the concerns and selling of gold currently? The short version is it comes down to the economic outlook. The US economy has been gradually improving along with the employment data and that has impacted part of the reason investors were buying gold, an alternative investment. The improving data out of Europe over the last couple of days relative to the sovereign debt issues facing the EU nations has been put to rest temporarily and that is pushing gold prices lower as well.

If speculation comes out of gold prices that will impact the downside as well. The chart below of the world gold index shows the current price at $1359 which corresponds with support (yellow line). If the price breaks below this support level the next support is $1322 and then $1270. How far does gold fall? Good question and one I am not willing to speculate on. However, I am willing to be short gold as a trade (0-13 weeks) opportunity, if it breaks below support at $1359. The first target would be $1322 and then $1279 obviously with the support at those levels.

ProShares Ultrashort Gold ETF (GLL) is another way to short gold with leverage (200%). The risk of the leverage works both way and should be taken into account before making any investment. The move above $30.20 is technically a break from the current trading range. Confirmation of the break would be positive for the fund and a target of $33 would be the initial look for the trade.

If you don’t like trading – ignore this post! If you do the opportunity is setting up currently.

What is going on with the telecom sector? Looking at a chart of IYZ, iShares DJ US Telecom Index ETF, there is a test of the uptrend in play pulling back to $23. It doesn’t seem like much to fuss about, but looking at AT&T (T) and Verizon (VZ) the picture is a little different.

If you have been missing in action the last few days – Verizon is getting the iPhone! That news has prompted everyone with an opinion to comment on what it means for Verizon, AT&T, Apple and every other company in the telecommunications sector. I am not about to tackle what it means because no one really knows other than the obvious… Apple wins! One Estimate stated that Verizon would sell 3 million phones in the first 90 days. 85% of those sales would come from existing Verizon customers. Who wins? Apple!

Verizon could win if those existing customers upgrade their data plans and thus increase incrementally the revenue for Verizon. There in lies the speculation. What will be the real impact in all of this to Verizon’s bottom line. Time will tell, but in the meantime the stock has moved from a recent high of $37.70 to $35.40 or a decline of 6%.

AT&T is the loser in all of this hoopla – right? Not really, they are reported to have more than 80% of their users under contract for at least another 12 months. If that is true, the migration or loss should be minimal over time. The outlook for AT&T is still positive and the upside growth potential hasn’t changed dramatically.

I stated that Apple is the winner in the launch of the Verizon deal, and they are, however there is another player that stands to win long term. The infrastruture companies who develop, own and operate communication sites. American Tower (AMT) comes to mind as one of the largest in the space. It is the expansion of smart phones period that benefits these companies as they provide the backbone to the wireless services. The expansion of 4G, the tablet explosion in progress, google droid phones, iphones, ipads….. they all benefit the expansion of the infrastructure companies. This is where to dig and find those who will be the leading providers in the US.

Telecom has pulled back within the current uptrend on the proliferation of opinion data about the iPhone (Apple), AT&T, Verizon and others. But, the real story is behind the growth of the sector and the ultimate winners. iShares DJ US Telecom Index ETF (IYZ) is great source for digging into sector and finding the winners. We are adding these to the Watch List as they surface, along with the opportunities.

Technology remains one of the leading sectors for the new year despite the downgrades and negative outlook by many in December for the semiconductor stocks. The chart below of the SOX index shows the break above resistance at 419. This was and is a continuation of the uptrend in place of the August lows. iShares PHLX SOX Semiconductor ETF (SOXX) is the best match for playing the move to the upside to capture all the stocks in the index.

Networking stocks have been moving higher as well. Like semiconductors the sector broke above similar resistance last week at $33.75 for iShares GS Networking ETF (IGN). The leadership from stocks like Juniper Networks has set the pace on the upside for the sector. The growth in the cloud computing segment has been the primary driver for the sector and the outlook remains positive overall. The current target for the ETF is $38.50 short term.

Software remains in an uptrend contributing to the overall strength of the technology sector. iShares S&P GSTI Software ETF (IGV) is the easy way to invest in the sector currently. If it breaks above $60 a short term trade opportunity would be attractive.

The internet sector is bumping against resistance at the high as well. First Trust DJ Internet ETF (FDN) needs to push above $35.50 for a short term trade opportunity. The sector needs some leadership to evolve. Scanning through the stocks most are moving sideways consolidating short term. Be patient and let this develop into a play.

Overall technology has been the primary leadership for the broad market and the upside is poised to continue short term giving opportunities in the sectors covered above.

Worry over European sovereign debt puts pressure on global stocks. We talked last week about opportunities developing in specific country ETFs on the upside, but the Portugal sovereign debt news today is putting some pressure on stock prices overseas. Europe ETF IEV broke below support at $38.60 today inviting the short sellers to take advantage of the downside risk. Germany (EWG) is down 1.1% and Spain (EWP) is down 1.1% as well. The move in EWP takes out the November low as the downtrend accelerates. EWP remains a good opportunity on the downside. If the news continues to be negative relative to the sovereign debt the fund is likely to test the June low near $30.40 offering an opportunity to be short the country ETF.

Another opportunity on the downside that could result from the debt challenges in Europe is FXP, ProShares UltraShort China 25 ETF. China is down 1.1% today as a result of the news relative to Portugal. If Spain were to follow suit on a bailout the impact to China would be worth playing the downside. Remember FXP is leveraged 200% adding risk to the play. Take that into account before investing.

As with any investment make sure you weigh the risk relative to the potential reward. Determine your entry, exit and target prior to investing.

Telecom is down nearly 2% on the day as AT&T stated they would sell iPhone 3GS for $49 versus the current $99. Competition is heating up as Verizon launches the iPhone later this year and WalMart already lowered the price on the iPhone. Metro PCS stated their fourth-quarter subscriber rate slowed over the previous quarter. Competition from AT&T and Verizon is the logical reason. The disappointing news comes on the heels of the upbeat outlook for tablets and increase in wireless demand and takes back the gains from yesterday.

Vanguard Telecom Services ETF (VOX) was down 1.9% on the day. T fell 3.2%, VZ was off 4.1% and PCS was down 6.8% on the day. What does this mean for the broader sector? I remain optimistic looking forward and it could become a opportunity worthy of digging through the sector looking for the leaders. Sprint (S) is flat on the day and I am looking for the stock to make a break through the current downtrend line off the May high. The move would be worth watching for a play near term. Clearwire (CLWR) which is building out the 4G network for Sprint has been under pressure from the debt load, made a nice bounce off the near term support at $5. News that Sprint (majority owner of Clearwire) would start selling the Blackberry PlayBook tablet sent the shares higher. The unlimited 4G data service they will offer with the tablet might gain market share from AT&T and Apple.

Level 3 Communications (LVLT) has bounced off support at 95 cents and look positive short term. US Cellular remains in a positive uptrend as well. Scanning the 20 stocks which make up VOX, half are in positive uptrend and the others are trading sideways. The outlook is positive relative the future growth and I would look for the buying opportunity created in any additional selling.

We continue to monitor the progress in the sector and will add to the Watch List as opportunities arise.

Blame it all on retail! The December sales data is mixed for the sector and putting downside pressure on the broad markets. My concern lies in the sector itself. The anticipation leading up to the holiday season was better than expected sales and earnings. The reality of the season may be disappointing and that is cause for managing the risk of the sector.

We currently own XRT and have a nice gain in the position, however we have adjusted our stop to protect against a sell off in the sector. Managing the risk of positions is the number one priority as an investor. Below you can see the chart of XRT and the solid uptrend off the August low. It is down 1.3% today and broke below the 30 day moving average which as been support throughout the uptrend. A break of support at the $47.10 mark would be another negative short term. Volume on the selling the last three day has increased significantly showing a shift in short term sentiment. Set your stops according to the risk you are willing to accept based on the current data.

The miss for December same store sales by Target (TGT), Family Dollar (FDT), Costco (COST), BJ’s Wholesale Club (BJ), Wet Seal (WTSLA), Zumiez (ZUMZ) and Areopostale (ARO) set the tone in the sector overall. Expectations were for each to show positive increase in data, thus the disappointment is hitting the share prices. The question mark for the forward looking sales in the first quarter is now on the table and to quote one analyst, “the answer is up in the air”. That is uncertainty and investors don’t like uncertainty. Look for the volatility to increase in the sector.

Next week the December sales data will be released. Expectations are for an increase of 3.5%. A short fall would be a negative for the broad markets. We recommend stops to protect the downside. If the number is better and the upside comes back into play you can always buy the positions back.

Scanning the sector turned up some positive stories. We are digging deeper and will add those we like to the Watch List tonight.

The futures were on the negative side when the ADP employment data. The positive news reversed the markets direction. It turned out to be a busy day of trading with the technology sector taking on the much needed leadership of the market. The following are sectors I found of interest in a follow up to my notes this morning:

Technology – XLK has advance past the resistance at $25.30 and looks to advance higher as networking (IGN), software (IGV) and now semiconductors (SOXX) advance. I like the leadership shift in technology to support the broad markets move higher in the next leg. The Consumer Electronics Show started today and the promotion around the tablets is all the buzz. The news is spreading and the stocks related are advancing. Watch the ETFs and dig into the specific stocks moving the sector. Click for more on SOXX and IGN.

Telecom – IYZ has advance passed resistance at the $23.50 mark and continues to look positive. The wireless business is growing and the tablet business is only adding to the opportunities. The rollout of 4G service will increase in demand as Verizon and At&t roll out their new services. I like the sector, we own the sector and continue to look for additional opportunities within the telecom space. Click for more on VOX.

Healthcare – XLV broke through resistance at $31.75. The significance of the move technically is it takes out the downtrend line from the January 2010 high. The drivers for the move have been the healthcare providers (IHF) and the medical devices (IHI). Look for the pharmaceutical (IHE) stocks and biotech (IBB) to continue to contribute as well. Overall money flow has picked up in the sector. The shift is positive for the broad markets. Click for more on XPH.

Financials – XLF moved above $16 and continues to be a positive sector for the broad markets. Banks (KBE) have been the driving force behind the move. The fact banks can get 0% money from the Fed and buy 30 year Treasury bonds from the Fed at 4.5% yields it seems pretty simple to make money today. They are cleaning up the balance sheets and making the necessary moves to become profitable and start dividend payments again. I like the short term outlook for the sector. Watch the regional banks (KRE) and insurance companies (KIE) to add to the upside. Brokers (IAI) are picking up steam as well with JP Morgan leading the way. We already have several of these in play.

Take time to review the Watch and Play List for more data on sector we are following.

Gold fell 2.5% at the open today as investors gain confidence with stocks. The move puts gold back below the $1400 level and questions relative to the future. I am not a gold bug, but this bears addressing short term. The chart below gives a picture technically relative what is happening to price. The consolidation is positive and well within the current uptrend. If we break below the trendline (green) then I would place my stop just below the $132 mark. That said, the trend is positive and the momentum is positive for the metal.

Look for the price to become more volatile if the fundamentals of the economy continue to improve. The transition to more risk by investors is driving money towards stocks and away from the flight to quality theme that drove gold higher. We are seeing the same transition in bonds. The move is good for stocks and bad for gold and bonds.

Watch the miners as well, GDX and GDXJ both dropped more than 2.7% on this move today. The selling is a response to gold prices relative to the stocks. I would put them on a watch list for a bounce play off support. Be patient and don’t feel you have to jump in today, but let it develop as gold settles near support.

Click for Entry, Exit and Target.

Welcome to the launch of our intraday notes or blog. The purpose is to post data throughout the day on thoughts, ideas and trading opportunities. I am excited about the opportunity this gives me as a communication and teaching tool. As we begin this new journey please feel free to send questions or comments to info@sectorexchange.com.

A sector of interest currently is networking. iShares DJ Networking ETF (IGN) made a move yesterday above the consolidation near $34. The break higher validates a continuation of the uptrend established off the June low. The ETF closed at $34.20 clearing the June 2008 high. The break above the three week consolidation technically was positive. The continuation to the upside shows strength and is a trading opportunity short term.

Scanning through the 23 stocks within the ETF we find the leaders are Skyworks Solutions (SWWS),  JDS Uniphase (JDSU), Ciena (CIEN), Interdigital (IDCC), Powerwave Technologies (PWAV), Qualcomm (QCOM), PMC-Sierra (PMCS), Juniper Networks (JNPR) and Plycom (PLCM). Each of these have been in a solid uptrend since the fund trend started.

Digging further we find some interesting opportunities developing in Sonus Networks (SONS), Broadcom (BRCM), Applied Micro Circuits (AMCC) and Corning (GLW). Each of these have been in a consolidation pattern and ready to break higher. If they are successful along with the continued leadership in the stocks above, the upside breakout for the ETF could move back to the 2007 high at $38.20.

Definitely worth putting on your watch list for a trading opportunity. Click for my Entry, Exit and Target.

The agriculture stocks have been moving up aggressively since the end of June. The initial push came on the drought issues in Russia and wheat production. Then BHP started a hostile takeover bid for POT and the race was on. The buyout set a benchmark or valuation for the agri-chemical businesses. The corn crops in the US were below expectations and thus corn prices have moved higher. This all begs the question – is the run higher done? Is the risk of ownership in the sector too high? The bottom line is demand, and we all know that demand puts pressure on price and for now that demand is likely to remain.

MOO, Market Vectors Agribusinesses ETF offers a great opportunity to capitalize on the move in the sector. The fund focuses on the 40 most actively traded companies in the agriculture chemical and product business. The break above the January high technically shows the continued strength in the sector. The recent pullback near $48.50 is the kind of pullback we are looking for to add to our existing positions. Unfortunately this only lasted one day. Watch and be patient for a clear point of entry.

As stated, one approach to the sector is to hold MOO as it continues to move higher. Another approach is to dig into the ETF and track the the individual stocks offering the best opportunities both short and long term. The ETF holds 49 stocks both global and US. Scanning through the list shows opportunities that have continued to unfold.

Linday Corp (LNN) is a producer of irrigation systems for the farmers. The stock was breaking from a long range cup last week and showing solid upside momentum. Wednesday it jumped 17% and hit our short term target on the stock. The challenge is finding a good entry point in these fast moving stock. You have to be patient and define your entry points, if you miss them pass and keep digging.

Bunge Limited (BG) is a producer of food and food ingredients. The stock is breaking higher and ready to move toward the January high of $70. It is currently trading at the $60 to $61.50 range and barring a break down this is a good point to plan your entry.

Corn Products International (CPO) shows a cup and handle pattern and technically is ready to break higher above $39.80. They are in the food products business of manufacturing an distributing corn based goods.

Archer Daniels Midland (ADM) has been consolidating near the highs at $33.60 and is ready to break higher as well. The increased talk around ethanol production in the US has helped the stock move higher. Watch for a clearly defined break higher short term.

It doesn’t take long to scan through the 49 stocks and find the opportunities. Define your entry, your exit/stop and your target. This allows you to determine the risk/reward relationship and define the objective relative to your portfolio. Remember, the sector has moved higher since the low in June and the best opportunities may be in the previous leaders which have pulled back, tested support and are poised to break higher. If you don’t like the research stocks, stick with MOO.