A couple of sectors are looking interesting from a technical perspective right now. Canadian banks and the Global Agriculture sectors appear to be basing after a period of negative returns. If you’ve read my book Sideways, you will know that I believe that markets move in 4 phases: Base, uptrend, top, downtrend. These phases repeat themselves – sometimes rather cyclically. You want to identify stocks or sectors that are basing – and then buy them when they break out. This, as I often mention on my BNN appearances, has been the single best profit making strategy that I have found when using technical analysis as a trading discipline. Trends are easy, but the really powerful moves are after a base is broken.
As with last week, I’ve posted a video to add a bit more colour to the commentary. I’m looking for feedback on these videos. If you have suggestions regarding their length, content or anything else–comment below. I’m new to the “video thing”, and would like to know what I need to do to make your experience better.
We sold out of this sector lock, stock and barrel in early January. The sector (aka ZEB ETF) put in a lower low, then a lower high, and broke the 200 day MA (40 week MA) at the end of January 2015. We used that rally to exit. It was a good decision, given the fact that the sector moved lower before recently rallying up to our sell point. This was 5 months of waiting to break-even – with significant opportunity costs for those who held on.
Note that the recent trough and peaks have moved higher for ZEB. This implies that the sector is basing. While ZEB is toying with its 200 day (40 week) MA, its showing some signs of positive movements on the daily chart momentum oscillators (watch the video below). Seasonality is best for the Canadian banks from October according to Thackray’s Guide, but I’ve bought them in the late summer in recent years with great success. ZEB needs to break 23.50 to confirm the transition into a phase 2 bull trend.
The iShares global Ag. ETF (COW) remains in an uptrend, despite the pathetic performance of this sector ETF since January. The 200 day (40 week) MA is intact and pointing in the right direction. The daily chart shows us that $33 needs to be broken before we get too excited, but the big trend on the weekly looks fine for the equities. The underlying commodity ETF (DBA-US) looks to be in a larger downtrend, but is showing some signs of basing – please see the video below. Seasonality comes in on the sector in August according to Thackray’s guide. As a side note, sentimentrader.com notes that the “soft” agriculture commodities – sugar, corn, etc., hit an oversold sentiment level recently. Sentiment levels appear to be moving up from an overly-pessimistic (oversold) level. Its early, but sentiment can be a good leading indicator.