Group Overview:
Looking over the last one and three month time periods, there has been just one major S&P sector that is still trading in the green. That group would be the utilities. Technology, via the XLK, has dropped more than 14% over the last 3 months. The ETF is lower 9 of the last 11 weeks and now trades 17% off most recent 52 week highs. Trying to find green shoots in the space, makes finding needles in a haystack easy. However it does not mean an investor should completely ignore the markets, as when sentiment gets this ugly we could be getting closer to a bottom. Let me make it clear that I do not think that time is now, but looking for catalysts for the debacle the benchmarks have endured should never end. It could be a bullish candlestick formation for example, but many of those have been negated recently. Instead of constantly looking to call bottoms, investors should take the approach that they do not mind missing out of the first 5% higher, and can sit on the sidelines until a new trend firmly comes into place. Patience is a virtue and can help one avoid capital DEpreciation.
Semiconductor Satisfaction Starting?
Any investors who have become accustomed to ADDING to names on the way down, is feeling the pain in a big way. The market has been flashing warning sign for many weeks now, and astute traders were raising cash. This is not the only time one should be making a list during the holiday season, but prepared market participants can be rewarded handsomely if they are putting in their homework in these perilous times. Below is the ratio chart of the semiconductors compared to the S&P 500. Remember this group may have been a “canary in the coal mine” as the SMH was one of the first major technology subsectors to lead us down in mid March. Can they be the first to lead us higher, when the market turns around? Certainly that is a big IF, but the markets always attempt to confound the most and have a great track record of doing so. Start pouring through the space and look for names that are holding up the best.
Examples:
One must never fall in love with a stock. One can rent a name and attach itself for a profitable ride, but if a chart shows signs of breaking down an investor must separate his or her emotional attachment to it. Below is the chart of AMD and how it was profiled in our 12/10 Technology Report. To be fair lets give this stock full credit for rising 19 of 23 weeks ending between 4/13-9/14, but since its highs it now trades 45% off most recent 52 week highs. It has endured three double digit weekly losses since the first week of October and it filled in a gap from the 10/24 session on 12/3, resuming its downtrend. That also happened to be resistance at a downward sloping 50 day SMA, and the top line in a symmetrical triangle. One can now add to their short, or initiate a new position, below the pattern with a sell stop under 18, which would carry a measured move to the single digits. Remember trends once in place are more apt to stay that way than reverse, and this could be a good example.