Friday, October 11, 2013

Using Technical Analysis to Increase Returns and Lower Risk

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IPO Pullback Trade Idea – FLTX

Last year IPO winner FLTX has given back a significant amount of this years rally from $21-52, pulling back nearly 40%, however when you look at where it’s come from the pullback doesn’t seem so bad. Don’t tell that to those who bought above $40, but trying to chase a stock when it was clearly in pullback mode is very difficult.
The good news is I believe given where the RSI is (above 40) that the bullish momentum remains and that when the markets turn around this will be ready to rebound in a big way. These IPO’s can bounce in a big way as you can see from this XONE trade analysis.
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T. Rowe Price Group, Inc. (NASDAQ: TROW)

T. Rowe Price Group, Inc. is a publicly owned asset management holding company. The firm primarily provides its services to individual and institutional investors, retirement plans, and financial intermediaries. Through its subsidiaries, it manages separate client-focused equity, fixed income, and balanced portfolios. The firm also launches equity, fixed income, and balanced mutual funds for its clients. It invests in the public equity, fixed income, and venture capital markets across the globe. The firm was previously known as T. Rowe Price Associates, Inc. T. Rowe Price Group was founded in 1937 and is based in Baltimore, Maryland with additional offices in London, United Kingdom; Central Hong Kong, Hong Kong; Tokyo, Japan; and Singapore.
Please take a look at the 1-year chart of TROW (T. Rowe Price Group, Inc.) below with my added notations:
1-year chart of TROW (T. Rowe Price Group, Inc.) This stock is very simple. TROW has held a very important level of support at $70 (blue) since back in March. Regardless of what the market has or has not down over that period of time, the stock has never broken that level. Now, TROW is approaching $70 again and that might provide another bounce higher, but the stock's recent downward move could be setting the stock up for a breakdown.

The Tale of the Tape: TROW has a key level of support at $70. A trader could enter a long position at $70 with a stop placed under the level. If the stock were to break below the support, a short position would be recommended instead.
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Three Charts That Make Us Scared For Canada's Future

The three charts at right (the first two produced by Ben Rabidoux, the third by BCA Research) are a bit worrisome.

They present three ways of looking at what is arguably a much larger housing bubble in Canada (relative to the size of its economy) than the one that eventually brought down the United States economy a few years ago.

It's unclear at what point this becomes a problem for Canada, however. Recent data have been fairly strong.

"September sales data suggest the wheels of the Canadian housing market are leaving the tarmac after a brief layover," said BMO chief economist Douglas Porter in a recent note to clients. "September resale transactions surged 64% y/y in Vancouver, 30% in Toronto, 19% in Calgary and 9% in Edmonton. True, sales a year ago were depressed by stricter mortgage rules, but the level of activity is far from weak, with Toronto posting the third best September in the past ten years and 8% above the mean, while Vancouver sales are only 7% below normal for the month ... With interest rates apparently again stuck in a holding pattern, it could well be blue skies ahead for this flight."

Nonetheless, we can't help but agree with Paul Kedrosky, who alerted us to these charts in a tweet, that they are particularly "eye-popping."

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4 Stocks to Profit From the Global Oil Boom: Schlumberger Ltd. (NYSE: SLB) Halliburton Co. (NYSE: HAL) Weatherford International Ltd. (NYSE: WFT) National-Oilwell Varco Inc. (NYSE: NOV)

The North American shale oil and gas boom is fascinating Americans with its stunning potential, as it propels U.S. oil production to the highest level since May 1989.

It is also creating a formidable profit-making opportunity for those who know how to invest in this burgeoning industry.

Even better news for investors – as Money Morning Global Energy Strategist Dr. Kent Moors has said repeatedly – the shale revolution isn’t confined to the United States and Canada; it’s going global.  (more)

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Stay Away From Retailers: $XLY, $XRT, $RTH, $SPY.

Today I wanted to talk about the problem I see in retail. Outside of Financials, I would say that retailers are one of the most important components in the stock market (and the consumer discretionary space as a whole for that matter). These are the guys you want leading. And for a while now, they have been. But currently I have plenty of reasons to worry and stay away.
Let’s start with the shorter term picture, because for risk management purposes this is what’s most important. I see a potential double top here in the S&P retail ETF $XRT that is as clear as day. I say “potential” because it really isn’t confirmed until the August lows are taken out. But I’ll say this: the consolidation in the 2nd top was very flag looking wasn’t it? And it broke down, not up – that’s a problem. In addition, momentum put in a substantially lower high on that 2nd top of the possible double top – another problem:
10-10-13 xrt
We are going to need a nice consolidation through time and a breakout above last week’s highs to invalidate any of these problems. And even then, I’m not so convinced. This is probably because when you put this short-term look into context, there are bigger problems at hand.
Take a look at the longer term weekly chart of retail. As leaders tend to do, the XRT bottomed out in November of 2008, well before the rest of the stock market. Since then, retailers have been in a beautiful uptrend within a well-defined trend channel. What stands out to me is when prices temporarily get outside of the parallel lines. These extremes tend to get back into that channel rather violently. Look at the low in October 2011 and look at the high this August (shaded grey):
10-10-13 xrt weekly
I’d stay away from retail as a group. And I’m sure we’ll be hearing about how great of a time it is for them as we enter the holiday season. Please do yourself a favor and ignore that nonsense.
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