The 3% gain in the
(INDEXDJX:.DJI) last week was the best weekly performance since the
beginning of the year. For a change, the Dow outperformed the
(INDEXSP:.INX) by 1%. Since the late June lows, the S&P has
outperformed the Dow by just over 2%.
Over the weekend, the news that Larry Summers had dropped out of
the running for chair of the Federal Reserve has given global
stocks a boost in early trading. Most of the eurozone averages are
up over 1%. Even more impressive was the sharp drop in short-term
yields and 150+ point gain in the Dow futures in early trading.
After last week's positive market internals, the overnight action
is not surprising, as the technical studies from Friday's column
"Stress Index Says Don't Worry Yet..."
indicated that the worst of the selling was over.
It was even more important that several key sectors did stage
important breakouts last week. Last week, I focused on the
materials and energy sectors, but the industrials also became a
market-leading sector last week.
These three stocks from market-leading sectors look attractive now
for new purchase.
Click to enlarge
: The chart of the
Select Sector SPDR Industrials
(NYSEARCA:XLI) shows the weekly close above the August high, line
- The weekly starc+ band is at $47.54 with trend line
resistance now in the $48.40 area.
- The relative performance broke through its downtrend, line c,
in August, which was a positive sign.
- The relative strength (
) line only corrected slightly from the August highs, indicating
that it is starting to act stronger than the S&P 500.
- The weekly on balance volume (OBV) has turned up from support
at line d as it held well above its rising weighted moving
- Both the daily RS and OBV (not shown) have confirmed the
- There is minor support now at $45.52-$45.72, with the 20-day
EMA at $45.26.
- The monthly pivot support is at $44.66.
) has been holding support in the $78-$81.50 area, line f, since
the summer of 2012.
- This level also represents the 38.2% Fibonacci retracement
support from the 2009 low at $21.71.
- The weekly close was well above the 20-week EMA at
- The downtrend, line e, is now at $88.30, with the February
2013 high at $99.70.
- In early 2012, CAT had a high of $116.95.
- The weekly relative performance closed the week above its
- The weekly OBV has formed higher lows, but needs a strong
move on good volume to complete a bottom.
- The daily technical studies (not shown) do appear to have
- There is initial support now at $86.20-$86.80 and then
Click to enlarge
Newfield Exploration Co.
- The monthly pivot and further support at $83.81.
) is a $3.40 billion independent oil and gas company that closed
sharply higher last week and last Wednesday's volume was four times
- The short-term downtrend on the weekly chart, line b, is at
$27.25 with the starc+ band at $27.65.
- The longer-term resistance, line a, is just above $32 with
the September 2012 high at $35.65.
- The relative performance has broken its downtrend, line c,
that goes back to the November 2011 high.
- The weekly OBV shows a bullish uptrend, line e, and a bottom
has been confirmed by the breaking of its downtrend, line d.
- The daily OBV has also broken out and is well above its WMA,
so the multiple time from OBV analysis points higher.
- There is initial support now at $24.90-$25.25 with stronger
at $24.40 and the monthly pivot at $23.94.
) is a $10.28 billion specialty chemical company that serves the
life science and technology sectors. It has a current yield of
- The May high of $85.91 was exceeded in August with a high at
- The 20-week EMA has been holding over the past few weeks and
is now at $82.51.
- The next upside targets are in the $89-$90 area, which
corresponds to the upper boundary of the trading channel and the
- The relative performance moved back above its WMA in
- A move in the RS line above resistance, at line h, would be
- The weekly OBV has turned up from support at line j and
closed back above its WMA.
- The daily indicators (not shown) are also now positive.
What It Means
- There is initial support now at $84-$84.40 with further at
the $82.50-$83 area.
: These three stocks have only bounced from support, especially
Caterpillar, which appears to be forming a long-term basis. Last
week, I recommended both the
Select Sector SPDR Energy
Select Sector SPDR Materials
(NYSEARCA:XLB). Now I would also look to buy the Select Sector SPDR
How to Profit
- For Select Sector SPDR Industrials, go 50% long at $46.05 and
50% at $45.46, with a stop at $43.79 (risk of approximately
- For Caterpillar, go 50% long at $86.65 and 50% at $85.08,
with a stop at $80.67 (risk of approximately 6%).
- For Newfield Exploration, go 50% long at $25.34 and 50% at
$24.12, with a stop at $23.14 (risk of approximately 6.4%).
Editor's Note: This article was written by Tom Aspray of
- For Sigma-Aldrich, go 50% long at $84.74 and 50% at $83.82,
with a stop at $81.38 (risk of approximately 3.4%).
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