Down but not out

A few readers seemed to enjoy my blog from a couple of weeks ago on the subject of “Fallen Angels”. That is, stocks that seem to be forming the beginning of a bottoming process – and should be on your watch list.

I spent a bit of time going through sector ETF’s and country ETF’s looking for similar opportunities recently. While there are always lots of fallen sectors or indices we can look at, I am looking for those that show at least some potential for forming a traditional “Phase 1” consolidation, and hopefully an eventual breakout. For more info on market phases, I’d recommend you read my book Sideways.

Below are a few of the charts that caught my eye. These are not necessarily “buy” candidates – view most of them more as “watch” candidates for your list. I’ve made a few notations with the charts presented. Enjoy!

 

Emerging markets-no longer submerging?

EEM

EEM shows us that the recently “Submerging Markets” may be trying to put in a bottom. A potential head & shoulders bottom – missing the right shoulder – may be in play. A rally through the neckline at around $35.50 may be a bullish sign. A “bullish cross” (50 day MA moving up through the 200 day) occurred on the ETF recently.  Sentimentrader.com notes that investor sentiment is getting overly bearish on this index. That’s usually a heads – up bullish sign.

Britain: Tickety-Boo again?

ewu

“Brexit” has been in the news lately, pushing the United Kingdom’s index down. Some signs of the stress abating has given the index a little relief recently. EWU has broken its 1-year downtrend, but needs to cross about $16.25 to suggest a successful Phase 1 bottom breakout.

 

Pharmaceutical sector- returning to health?

DRG

The Pharma (DRG chart)  sector has broken a 1-year downtrend – but remains below its 200 day MA and below a key technical resistance point at around $525-530 on the chart. A breakout would imply lots of upside for this sector – resistance targets of 550, 570 and the old highs of 610 are possible.  Keep an eye on this one.

 

Natural Gas stocks–about to pop?

xng

The XNG Nat Gas index suggests a Phase 1 bottom is in the works. A move above 575 resistance would verify the bullish crossover and move by the index over its two key MA’s.

 

Airlines- ready for takeoff?

DJUSAR

A consolidation pattern between 200 – 260 has been in place for this US Airlines index since early 2015. DJUSAR is caught in a tight trading pattern. Right now, it appears that the index is bouncing off of that significant support level at around 200—a bounce to the top of the pattern would seem possible. Here in Canada, we can also see some signs of improvement in Air Canada and Westjet, as they break through 1-year downtrends—charts not shown. This is a sector worthy of consideration on both sides of the border.

 

15 Comments

  • Thank you for the analysis, as always very valuable. I am also monitoring LIT which may finally try to emerge from a 10 year downtrend. What do you think?
    Also what impact would Brexit have on Ewu?
    Thank you Joanna

    Reply
    • LIT certainly does appear to be another “Fallen angle” candidate–thanks for sharing this one!
      Brexit’s effect on EWU–I would assume it would be negative on their stock markets. At least at first…best to ask an economist how long a negative impact would be for the longer term…

      Reply
  • Hi Keith,
    Do your comments apply to the edged Canadian ETF proxies in these areas (e.g. XEM – emerging markets, ZUH – health care, XEH – Europe, and ZJN – natural gas)? Are there other ETF’s that you would consider?
    Secondly, I would play the airline (aerospace) sector in Canada through CAE which has recently broken through a sideways pattern of several years and through resistance around $15.50. What do you think of this strategy?
    Thirdly, I am not familiar with, nor have I been able to determine what LIT is. Lithium comes up, which is a very topical area in view of TESLA, but I don’t believe it is what you meant.
    Thanks as always.
    Joe

    Reply
    • CAE is on our watch list Joe–we like it.
      LIT was a suggestion by a reader–I took it to be the lithium ETF. Its pattern is interesting.

      Reply
  • Thanks for sharing Keith. Have my eye on XHC for a sector rotation possibility.

    Markets in general, crude oil, financials all looking pretty strong at the moment…wondering if this will be the last gasp upward. Have to wait and see I guess.

    Reply
  • I bought HUV.TO on April 4th on recommendations at that time and am now down 20%. Just wondering with the bullish trend of the market in the last week if I should sell hang onto it and wait for the downturn or sell and cut my losses?

    Reply
    • I wouldn’t speculate with HUV Cathy–we hold 5% position (which is down some 10% since buying it) as a hedge. HUV can be a negative correlated asset to the market. That, plus some inverse ETF’s – plus a bit of gold–are designed in our way of looking at the market as an offset. We currently hold 10% HUV and Inverse, 3% gold, 33% cash, and the balance in stocks. Our reasoning was to create an overall portfolio beta of about 0.3 (or so). Thus, if markets go up 10%, we make 3%, if markets fall 10%, we lose 3%.
      Don’t hold HUV as a way of making money…instead, use it as a negatively correlated asset (with greater leverage to that offset) to dampen overall portfolio volatility.
      You cant have your cake and eat it too!

      Reply
      • I remember that blog! Thanks so much Keith for your comments and sharing your portfolio allocation. Also really enjoyed your book Sideways- so much useful information even for a novice investor!

        Reply
  • once again the market does the opposite what the crowd says it would do

    Reply
  • Forgot mention FTT.to as it may be another one that is in a reversal process after a near 2 year downtrend. What do you think?

    Reply
    • The challenge for FTT is the overhead wall (former support) at $22-ish that held it up from 2011-2015 before its breakdown. It needs to crack current levels firmly–then it will target high $20’s.

      Reply
      • Agreed 22ish is upside resistance. The weekly downtrend has been broken and it’s in a nice upward channel on the daily chart. Don’t quite like the shape of the pennant pattern (trending sideways for last 10 days) and the pros are not in control so money flow is not positive. The stock could have a quick move down to the 20 area to test the bottom of the upward channel. However, that would be an interesting level to watch short term indicators for an entry, especially if money flow by pros ticks up. Also of note is that the historical seasonal chart for FTT turns positive again at the end of June, so that could be another supporting factor.

        Reply
  • LIT full name is – Global X Lithium ETF.
    On a different note – oil is going strongly up however the oil seasonality apparently ends in the middle of June . Although many factors have been influencing the oil run it seems that the consumer demand had the strongest influence this spring. What is your opinion?

    Joanna B

    Reply
    • Oil chart looks good–its due to pull back a bit –and that might be the thing that happens after the seasonal period ends in a few weeks as you note –but any pullback would suggest a buying opportunity.

      Reply

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