Add these sectors to your radar screen

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.

 

Canadian banks: 

ZEB

 

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.

Agriculture

cow long

 

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.

 

[su_youtube url=”https://youtu.be/9UOgnDt83VM”]

16 Comments

  • Keith I like the videos so far.

    I sold out of DFE yesterday, how does one know when to sell? Resistance goes back about a year at around $61. I dont really want to wait for all the signs to sell b/c one can lose a fair bit of profit since one doesnt ordinarily buy when its hit bottom either.

    Thanks
    -Bob

    Reply
    • Knowing when to sell is both art and science Bob–at VT we follow some rules when we sell. A lower high, followed by a break of a 200 day MA is one of them. But sometimes we sell because of seasonal trades that line up with a key piece of technical resistance. Lastly, if a company displays individual characteristics of a weakening financial picture, we will sell.
      Most of our sells are triggered by either a break of a trend per the “lower high” idea – but I must point out that its also a matter of trading instinct sometimes–and that comes with experience.
      Don’t forget–I’ve been doing this for 26 years. Sometimes that experience helps me more than anything.
      Finally–a shameless plug: buy my book Sideways–its going to help answer that question.

      Reply
      • Thanks Keith, Ive been thinking about buying your book but then someone mentioned smarties and I got snackish and sidetracked.

        Reply
  • Keith,
    The videos are a good addition and I do not seeing anything that needs to be changed at this time. Maybe other people might suggest something. Keep up the good work.

    All the best
    Kevin

    Reply
  • It seems to me just from scanning newspaper sites that the general consensus is that a correction is coming maybe be even a large one. But usually what happens when most are expecting a correction is that the market continues higher and shakes out the shorts. I think that is what we will see here. The S&P will continue on to new highs.

    Reply
    • Sentiment studies are largely about what you are speaking about Dave.
      I note that the smart/dumb money stuff I look at was historically very bearish a month ago (71% dumb money confidence, 39% smart money confidence) but the indicator has since leveled off quite a bit–“dummies” still like the market more than “smarties”, but the difference is less extreme.

      Reply
  • Hi, Keith
    Thanks for introducing the videos together with your written blog and I think it is welcoming! It is definitely a more effective way to communicate.

    We really appreciate it!

    Reply
  • The USA ETF MOO agrees with your take on that sector. It is breaking out of a long term base formation. Looks good for risk reward

    Reply
  • Hi Keith,

    I agree with Dave. Have you had a chance to look at MOO? It looks like a long base, multi year, formation that you would really like. Any thoughts?

    Regards,
    Eric

    Reply
    • MOO looks encouraging. I’m looking at the breakdown of the stocks in that index and in COW right now. We don’t own it yet, but may in the nearterm.

      Reply
  • Good chart legibility, zooming, and use of highlight on the cursor. Thanks for the info! You should probably oil your chair and move the plant from behind your head.

    Reply
    • Thanks Roy–totally agree with my annoying chair squeak!
      Keep forgetting to bring in the WD40!

      Reply
  • Great article once again Keith, your blog has become a regular read.

    I’m wondering what your thoughts are on gold?

    Reply
    • Hi Pawal–thanks for the kind words
      I’ve blogged on gold many times- and I tend to cover it at any and all of my speaking engagements. Do a search in the blog search engine and you will see my charts–but in a nutshell, its been stuck in a consolidation pattern for a long time–right now its a short termed traders vehicle only. A break through the mid $1300’s is a while off, but that will be a longer termed buy signal. Not until then. $1160 or so is a good risk/reward entry zone for a short termed trade. But sell about $100 over that entry and keep a tight stop should the trade move against you.

      Reply

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