Sectors worth examining during an end-October pullback

October 17, 20114 Comments

 

We are now entering the “seasonal buy period” for stock markets according to the work of Don Vialoux (www.dvtechtalk.com) and Brooke Thackray. A near-term market pullback may create opportunities for cash investors may have been hoarding over the summer. There is reason to believe that we may get a fairly short selloff on the markets this week, given the G20 meeting next weekend, and other political events happening throughout the world. The S&P 500 is also back to the top of its recent trading range at around 1220 or so where it will meet resistance. While the “big picture” momentum indicators like RSI and MACD are fairly neutral regarding market entry/exit timing, the shorter indicators like Stochastics are overbought. All in, thins may create a buying opportunity over the next week or two. Here are a few of the sectors that I am looking at:

Technology

Regular readers of this blog and media work may recall that I favored Canadian technology last fall for a trade into the winter. That decision did result in outperformance of the U.S. technology sector over the period I traded it. This year, with RIM being a big component of the Canadian sector and looking risky, I favor the U.S. technology sector. Seasonally, it is coming into favor, and technically, it appears to be breaking out. While not overbought, XLK (the US technology SPDR shares) could easily back up a bit into the $25 area and still look healthy.

Agriculture

There are almost too many ways to play the agriculture sector – it gets confusing. Fertilizer? Grains? Stocks? Commodities? Equipment? The list of choices is large. I favor the grains or fertilizers, but take a look at all of your options before putting any money down. IPath has a grains note (JJG-US), BMO has something similar through their ETF’s (ZCA-TSX). This sector is just coming off of an oversold condition and is worth examining.

Gold

Gold has sold off enough to merit attention again. It’s not quite back to the 30 week (200 day ) MA, but it looks to be rising off of its recent test of $1600-ish. A short termed movement to the $1800/oz. might be possible, once the speculators return. At present, trading by speculators (outstanding non-commercial futures and options contracts) in gold is down more than 40%. Given that these folks are often technical analysis-orientated traders, it would suggest that they may soon be trading gold as it bounces off of its trendline. By the way—for those who emailed me asking where they could buy my new book, Sideways–please take note of the new Amazon link on the right of this page.

 

4 Comments

  • What is your take on the decidedly weak volumes right now. It doesn’t seem to matter whether it’s an up day or down day, investors seem to be quite satisfied to sit with what they have.

    I am inclined not to buy until I see some more commitment (thereby joining the crowd). Any comments?

    Reply
    • Fred–you are dead-on, and I should have mentioned that in my posting as another reason to look for a pullback in the coming week or two to buy into. Actually, the one discouraging thing about the movemnts of late has been the declining volume on rallies, but increased volume on the last few days of a selloff (as the S&P has gyrated between 1120 to 1220).
      Having said that, there are some market leaders showing some upside lately, and that will likely give the seasonal factors another win for at least the next few months before it gets ugly again.

      Reply
  • Keith: Recent 3Q earnings have come in on the weak side. IBM, Intel, Apple, Alcoa are a few names that come to mind. I quote Brooke as saying “a strong earnings season in the US may push the markets to 1250”. So we are not currently seeing strong earnings so can I conclude that if we do see a rally it may not be that strong or reach 1250? I guess where I am going is in theory after Oct 28 should be the turn around season, but maybe the fundamentals come into play being weak earnings in which case something other than what we had hoped for in November may come about. Maybe up but the fundamentals will minimize the gains? Thoughts?

    Reply
    • A weaker earnings season may reduce the upside of the traditional seasonal winter rally- but I dont know if I’d discount any type of rally–markets, as you know, move as much on emotion (fear and greed) as they do on earnings. If the crowd starts to believe in whatever solution the G20 comes up with over the coming week(s) or if the market starts to believe we can sidestep a recession-that may be all it needs to move up. time will tell.

      Reply

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