Wednesday, October 13, 2010

Rally Broadens Further

The rally continues to broaden out, with lagging groups now participating.

Financials and Insurance have been lagging on this move, but they are very important. A move above $54 on Financials (IYF) would be an important turn in the opinion of market. Insurance (KIE) has stalled after breaking out, which is bullish.

Berkshire Hathaway (BRK/B) has been stalled out at old highs for several weeks.

Crude Oil (OIL) has been stuck underneath its 200-day average for the past five months. A break above would tell you that the sentiment has changed from Bearish to Bullish.

Keep in mind that many breakouts fail and these failures often turn into vicious losses over a very short period, so committing money is a process, which requires constant monitoring. But this is the first time stuff has been working like this for many months.

Treasuries have broken bullish symmetry and look to have a deeper correction. That could be the start of money flowing from bonds into stocks, which would be even more bullish.

Monday, October 11, 2010

Some Gold Stocks Consolidating

Gold has been on a tear as the Fed is now printing the Dollar into oblivion. However, while Gold has gone parabolic, many Gold stocks have not followed.

Barrick Gold (ABX) has just broken out of an 11-month base. Harmony Gold (HMY) is trying to do the same.

The “Junior” Gold and Silver stocks have been performing much better than their larger counterparts. Some of this have been the result of M&A activity and some is the result of the larger companies using hedges for future deliveries. As you can see, a lot of the Juniors have stalled out over the past few weeks (similar to the NASDAQ 100).

These are the setups you want to see in leading areas – narrow trading ranges in an uptrend. If prices fail here (like they did in a lot of leading NASDAQ names last week), then I will look for support near the 50-day averages (Black Lines).

Stalled and Consolidating

The NASDAQ 100 (QQQQ) has been the leader. It has now been in a narrow trading range for about 15 trading days. While the index has stalled, many of its key components and leading names have also stalled and consolidated. They are now in a position where the big boys can break them out and run them again or hit them hard. This trading range gives me a chance to manage risk.

There are many other leaders that look very similar.