I love sideways stock patterns. In fact, I named my second book covering Technical Analysis after that pattern. There are two ways to trade stocks or stock sector ETF’s that are stuck in a sideways consolidation patter. You can buy at the bottom of the range (support) and sell at the top (resistance). Or you can buy on the breakout after the consolidation.
Two sectors that have been stuck in fairly long consolidation patterns are the Canadian Financials and the US Industrials. Let’s take a look at their charts.
The iShares Canadian capped financial index (XFN-T) has been sideways since 2016. That’s a long time! The sector is concentrated. Three banks (RY, TD, BNS) make up half of the ETF. The balance of the ETF includes other banks, insurance, and even asset management companies. The ETF has been trading $35-$39 fairly predictably since 2016. Note that I am using the non-dividend adjusted chart feature on stockcharts to identify the breakout point. That’s because this sector pays fairly high dividends, which can distort technical patterns when you are using dividend reinvested price charts. At this moment, it looks to be testing that $39 ceiling. Will it break out? If it does, it will be a candidate for a nice move up. The longer the base, the greater the case, as they say. If the sector fails here, it will be a trading stock that becomes attractive again near $35.
Interestingly, the US financials are looking interesting too. The SPDR Financial sector ETF (XLF-US) has a similar sideways pattern as the Canadian financials. They’ve been moving up on the neartermed charts. The next step is to bust resistance at around $28, which has been containing the sector for two years. Certainly, this is one sector—on both sides of the border- to keep an eye on
Do you remember the song by Dire Straits called “Industrial disease?” This sector, as illustrated by the SPDR Industrial sector ETF (XLI-US) has been sideways since late 2017. Like the financials, it too is testing its ceiling of near $80. A breakout would be bullish. A failure to breakout would suggest a trade if it returns back into the $72 support zone. Its pretty well diversified – with big names like Boeing, Honeywell and UPS getting relatively similar allocations. The sector has been an underdog – but as I noted on this blog last week, we’re seeing some insider buying in many of the names that make up the sector. You keeners out there might identify the XLI pattern as a Head & Shoulders setup. That setup, if real, becomes legit only after the neckline breakout of around $80. Again, this is one we ought to keep an eye on!
I’m at the MoneyShow this Friday!
Don’t forget to register early for the MoneyShow in the Metro Toronto Convention Center. I’m presenting this Friday September 20 at 4:15PM on something a little different. I’ll talk about trading capitulation candidates–higher risk/return plays. I’m looking forward to this talk! Here is a link to register, and find out more about my talk. Pre-registering doesn’t cost you anything, and helps you avoid the registration lineup.
I, too, have been looking at the financials. I was fortunate enough to buy into the beaten up energy stocks. Today they popped. Would you take profit or do you think $65 wti oil is a possibility.
Sure $65 is a potential. Apparently the damage in SA is going to take multiple months to fix.
I am holding just one oil stock– next resistance is 10% up from here. Not sure if your stocks will have the same potential, but it does look like the upside may carry us a wee bit more. Keep a happy finger on the sell button, though.
It’s will be tough to be too negative on the market with a China deal likely
Re Dave’s comment about “tough being too negative on the market”, I watch the % of stocks trading above the 50 day MA and 200 day MA for both the TSX and the NYSE. All are reaching for the 70% mark or over. One might get the impression there is a lot of exuberance out there. Add to that, the VIX is under 14 but not yet at it’s 52 week low. Rejoice but be careful.
My blog for tomorrow covers the topic of cautious investing
Hi Keith. I see the U.S. Financials (XLF) has broken and held the $28 mark for more than 3 consecutive days. What would be your sell point? On a personal note, how are you feeling? Have you gotten over your nasty fall a couple of months ago?
If you are trading the ETF, the strategy is to buy at around $25.50 and sell at 28.50 (rough price points). But…if it breaks out say beyond $29 and stays there (which it hasn’t) then it becomes an attractive breakout buy candidate again. Hope that makes sense–if not–read my book Sideways!
Re the hip–thanks so much for asking. I fell June 1st, spent 3 weeks totally off the bike, another 3 weeks on a trainer spinning with as much power as a 3 year old can put out. By mid July I got outside and started riding slowly and still painfully–but by August I was riding well. Albeit, my prior race fitness had evaporated. Currently I am riding a full training plan–I even went in a local race 2 weeks ago to test my fitness (not expecting much beyond a hard workout). I’m on track to to race fitness by mid-winter. Amazing how the body heals!
Thanks again for asking.
Hi Keith, Applying your technical analysis to ARX, (never buy on a down trend), this stock showed strength in a recent uplift but has since pulled back, and now seems to be consolidating. Do you agree with this? If so, is now perhaps a good time to buy, since winter is now approaching as well?
Thanks , Love your comments on BNN and you’re Blogs.
I typically don’t address individual stocks on my blogs- too many to answer if I allowed that! BNN is all about that..But I will say that most energy stocks, ARX included, are suffering. Kinda early to say there is any sign of life (base) in this stock, or in the group, yet. For me, I am underweight the sector. We have no exposure in our Equity Platform and 3% exposure in our Aggressive Platform. That’s it! Perhaps that tells you where I stand on these stocks….