Stock Market Today: Zeroing in on What's Ahead

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By ETF Stocks

Interestingly, the overall stock market looks limp from the outside. The technical picture is perilously close to a tragic sell signal, economic and political news are dragging at the backside, and earnings growth will likely slow in the 2nd quarter. The mix is a recipe for more downside in the days/weeks ahead.

However, as ETF Stocks flipped through sector charts in our weekly review, we found a growing list of sectors that have emerging outperformance characteristics. Meanwhile, the weakest industries are starting to pull it together and very few made our sell list.

The recent rough waters for the sailing bull market could be the result of big money moving away from the hottest 2012 sectors like tech into more defensive industries like utilities and drugs.

Some sectors we would consider buying includes:

Medical Equipment

  • Utilities
  • Pharmaceuticals
  • Fixed Telecom

Biotech

Some sectors we might avoid:

Gambling
Clothing

Technology, especially Software and Tech Hardware

While we do see some rays of sun peeking through the clouds, the indexes haven’t reached critically oversold readings. ETF Stocks would advise our readers to pay close attention to 2900 for the NASDAQ, 12,700 for the Dow, and 1340 for the S&P. If the last stand technical levels defend their turf, then we would consider adding stocks form our preferred list.

If the firewalls collapse and the market gets infected with sellers, then shorting stocks form our avoid list could payoff.

For the week ahead, and perhaps beyond, ETF Stocks suggests considering a ZERO Trade until the market makes up its mind, break technical support or rush on back up to the upside.

To execute a ZERO Trade, investors need to buy an ETF or stock(s) from and outperformance list and short an equal amount from the underperformance column. An example would be to buy $25,000 of iShares Nasdaq Biotechnology (IBB) and shorting $25,000 of iShares S&P North American Tech-Software (IGV).

If our assessment of forward performance for sectors is the correct call, then as long as IBB outperforms IGV, it doesn’t matter if the market moves up or down 50%, the trade will turn a profit – minus expenses, margin interest, and/or whatever fees your broker charges. 



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , ETFs , Investing Ideas , Stocks

Referenced Stocks: IBB , IGV

ETF Stocks


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