TradingVillage: Weekly Commentary

Atheros: Wireless Technology Breaking Its Channel

2010-05-17T19:11:00.000-07:00

Atheros (ATHR) is in a variety of wireless technologies. The stock had been in a well-defined uptrend since the market low in March 2009. The stock, in a very orderly fashion moved though the channel illustrated in the chart. In this month's decline, ATHR broke-down out of the channel. This could be a very bearish sign for the stock. In fact, after slicing through the channel on the crazy Thursday, ATHR rallied back to the channel and failed. However, all may not be lost for ATHR. On the big down day on May 6th, ATHR fell to the 200 day moving average and bounced. That point, coincidently represented a 38.2% retracement from the April 21st high. This retracement level is important to those who follow Fibonacci levels. Today ATHR traded again to the 200 day moving average and again it bounced. So where does this leave us? I'd say that ATHR needs to get back into the channel before it can be considered a buy. The channel lies around $38. The stock closed today (May 17) at $34.71. Of course, if ATHR falls below its 200 day moving average, it could fall a long way, perhaps to the gap between $23 and $24.

All That Glitters Is Not Gold: What About Silver?

2010-05-13T14:08:00.000-07:00

Silver has lagged gold for quite some time. Silver is a precious metal but is often referred to as "poor-man's gold". It has never been considered the same "store of value" as gold. Perhaps the disconnect comes in that silver has more industrial uses so it may be perceived as being more economically sensitive. In times like today, where the global economy is just coming out of recession, there may be enough doubt as to the sustainability of the recovery to keep the brakes on silver prices. Notwithstanding, the price of silver was up about 50% in 2009 and is up about 15% so far this year. So are silver mining stocks worth a look? The chart of Pan-American Silver, symbol PAAS, looks very conducive to trading. I'm not sure which way PAAS will go but from the chart below, the key price level is $27.00. There is a well-defined horizontal resistance line at $27.00 that began in August 2008 and just was broken to the upside yesterday. Volume was strong as well. So use the $27.00 level as a pivot-point. If the level holds, PAAS is likely to move higher. The next significant resistance level appears to be at $35.00 where another horizontal line (the tops of the then head-and-shoulders pattern) exists. If PAAS cannot hold above $27.00, then the stock could fall to the $20 - $21 level where there was a double bottom in February 2010.

A Second Opportunity For TBT

2009-12-11T07:19:00.000-08:00

I posted once before about TBT and now again, TBT seems to be presenting an opportunity. The TBT is an exchange-traded fund (ETF) that creates a short position in the long-term US Treasury bond. Today TBT appears to have broken out above a long-term down trend-line and triangle pattern. From a technical standpoint this is bullish. From a fundamental view, interest rates are at historically low levels. A simple mean-reversion would suggest that rates will go up and bond prices will go down and the TBT will go up. Beyond mean-reversion, there are strong reasons to suspect that Treasuries will drop. First, the US government has been buying Treasuries to keep rates low to help the housing market and the economy. Once the government stops supporting the bond market, rates will rise. Second, so many investors are still scared of another collapse like the one we saw in the fall of 2008. These investors have kept their money in US government bonds. If the fears subside, these investors will sell the government bonds and buy other riskier assets. Lastly, the high US trade and budget deficits should, over the long-run, cause rates to rise. Today, the 10-year treasury auction did no t go all that smoothly. Perhaps we are beginning to see a change in the interest rate environment. It may be early but the technicals seem to be aligning with the fundamentals in TBT.

The Case For Motorola

2009-11-01T18:31:00.000-08:00

In this weeks's Barron's, there is an article that pulls together a positive investment thesis for Motorola. Yes, Motorola the once high flying cellphone and electronics firm that has seen its fortunes decline steadily and dramatically since it introduced the revolutionary Razor cell phone several years ago. With Motorola's stock price around $8.50, down from it's all-time high of $60 in the go-go late 90's, and up from it's 2009 decade-low of $3 now worth a look. The positive fundamental argument is based Motorola's long awaited entry into the smart phone market. It is releasing two smart phones both utilizing Google's Android operating system. The Cliq will be launched over the T-Mobile network and the Droid will be a Verizon network offering. Motorola, despite its recent market and product mis-steps still has excellent brand recognition and strong distribution. While the smart phone space is crowded with Apple and RIMM leading the pack, an entry from Motorola, could very will give MOT's stock price a lift. Now for the Technicals. What do the charts say?

I've pulled a monthly chart and it appears that there is a long-term trend-line that is a resistance line. The chart suggests that the stock is breaking above the resistance line. A small pennant formation has also been been broken on the upside. Further, the RSI's have moved above the "over-sold" level and the MACD has crossed its signal line to the upside. This all suggests that MOT is poised to continue its recent upward movement. If the break-out to the upside is for real, the first target level would be $12 which is where the 55 (in this case month) moving average line sits. The $12 price is also the 38% Fibonacci retracement level. If MOT can move beyond $12, I would look at the $15 area as the next target. This is the 50% Fib retracement level and is also where the 200-month moving average cuts across. If one enters the trade, I would suggest putting a stop-loss order in just below $7, the place where the 13-month moving average is.

Time to get back into TBT

2009-07-19T20:54:00.001-07:00

TBT, the UltraShort 20+ Lehman Treasury ETF, pulled back to the bottom of a well-defined channel and looks to have held support. TBT closed Friday at $53.56. The top of the channel is around $63. I think that the bearish case for US Treasuries is compelling not only from the technical perspective (that it held a support trend-line - remember this is a Short ETF) but from a fundamental, macro-economic view as well. In both the bullish case and the bearish case for the economy, US Treasuries are like to decline in price. If the economy recovers, money should flow away from the Treasury market and into riskier assets such as stocks and corporate bonds. If the US economy falters and worries of high deficits erode confidence in the US as a "safe-haven" and "reserve" economy, investors are likely to sell Treasuries. TBT looks like a good trade with a stop at $48 and a target fro profit-taking around $63. With TBT about $53.50, that gives you a risk-return profile of 5.5 points on the downside and 9.5 points on the upside almost a 2 to 1 ratio.

885 on the S&P500 is critical

2009-07-05T20:31:00.001-07:00

I hope everyone enjoyed the 4th of July weekend. While the stock market in the second quarter was certainly something to celebrate, I am still cautious about the near-term. The market, since the June 12th closing recovery high, has been sloppy. There appears to be a line in the sand at about 885 on the S&P500. If the market were to close below that level, it could signal the start of a significant pull-back. Aggressive traders might want to establish a long position around 885 with a tight stop. If 885 holds we should get a move to the 940 area (the 200 day moving average). If the market breaks down below 885, I'd look for support around 810.

Thoughts on Emerging Markets - Emerging Consumers

2009-06-09T14:49:00.001-07:00

For the past decade, the story of the emerging markets was one of export driven growth. What a story it has been. The economic engines of China, India, and Brazil have transformed the global economic framework. Exports will continue to be a core component of growth in the major developing economies. The export economy has lead to rising incomes and a developing middle class in these countries. This, in turn, is creating the conditions for a new driver of growth in the developing world - domestic consumption of goods and services. I'd suggest that this local demand for goods and services may well be the factor that will lead the next bull market. Here, we are not talking about a trade but rather a longer-term theme that investors may want to consider when building their core portfolios. So how does one play it. There are several fronts but today I'd like to focus on packaged goods and consumer staples. There is an arbitrage of sorts going on where consumer goods companies are using the steady cash flow received from slower, mature markets (read developed world) to expand in the faster growing, higher return economies of the developing world. I've usually stayed away from consumer companies as their valuations have been relatively high on typical metrics such as P/E, P/Book and PEG Ratio. The recent bear market combined with the accelerating growth of the developing world, has made these types of companies cheap on a historical basis. Well-managed firms with significant exposure to the developing world such as Unilever, Heineken, Pepsi, Coca-Cola, P%G, Nestle as well as others are selling below 15 times earnings. These companies represent strong global brands and are worth a look.

SPY chart - 200 day Moving Average - Resistance

2009-05-28T06:53:00.000-07:00

The S&P500 (as shown here via the SPY) has been trading essentially sideways for the most of May, even forming a flag pattern. From a technical perspective, it is the 200 day moving average that is presenting a major barrier to upside progress. A close above 95 would be bullish and a good entry point.

Remember the Ag's

2009-05-18T12:07:00.000-07:00

For the last several months when there is discussion about commodities, it has been about copper, gold and oil. All three have been strong and seem to be leading the commodity move off the recent bottom. While most of the commentary has been focused on these commodities, I'd like to suggest that conditions for the grains and softs look constructive. Corn, wheat, soybeans as well as coffee and sugar could be setting up for a significant move to the upside. Drought conditions in some parts of the US farm-belt and flooding in others have hindered early plant development or have delayed planting altogether. There are some significant supply issues in the coffee market as well, mostly the result of crop rotation into soybeans when the price of biofuels was skyrocketing last year. Coffee trees take approximately 4 years to develop fruit.

So how can one play a move in grains. There is an exchange traded fund sponsored by Powershares that tracks the Deutsche Bank Liquid Agricultural Commodity Index. The symbol is DBA. It is roughly equal weight in corn, wheat, soybeans and sugar. From the chart below, DBA has been in a bottoming channel since late September. A close above $27.50 could suggest a break-out of the channel. Additionally, a close above $27.50 would be a meaningful move above the 200 day moving average as indicated by the dotted red line. If this represents a true break-out, I would look for a near-term target of $32.50, which represents a 50% re-tracement of the downward move from June 2008 to September 2008. The upward move to $32.50 would also close the series of gaps that were made during this downdraft.

Tale of the 200 Day Moving Average

2009-04-19T20:40:00.001-07:00

The 200 Day moving average is universally considered an important technical concept. When a stock is above its 200 day moving average, it is considered to be a bullish sign, and conversely, when a stock is trading below its 200 day moving average it is thought to be bearish. We are seeing many stocks challenging their respective 200 day moving averages as the stock market has been moving up steadily since its early March low. Will the 200 day moving average serve as resistance? Or will they be broken on the upside and create a catalyst for technicians to buy, thus continuing the rally? Many retailers have broken above their 200 day moving averages and seem to have been testing and holding. Many of the financials are running into the 200 day moving average. This development worth watching and should provide a key to the short and intermediate outlook for stocks. If stocks are breaking above the average, the move up will continue. If the 200 day moving average proves to be resistance, it is a signal to take profits.

Energy Complex

2009-03-21T10:18:00.001-07:00

With the Fed pumping up the monetary base, the talk is re-flation. Let's look at the energy complex. The charts for both Natural Gas (UNG) and Unleaded Gasoline (UGA) look constructive. While one needs to wait for price moves over the well-defined resistance lines (in UNG it is a downward sloping line while in UGA it is a horizontal line). UGA also appears to be in a U-shape or saucer pattern. Both UNG and UGA show very little resistance above the break-out areas so it is reasonable to expect a significant move to the upside if they can break-out. Be patient.

Retailer Bargain Bin: AEO, M, TGT

2009-03-19T06:54:00.000-07:00

Many of the retailers I've looked at seem to be in the process of making nice bounces off their recent lows and re-tests of previous lows. It's worth taking a look at AEO, M, TGT. It's difficult to believe that retailers can be "off to the races" as the economy has not recovered. Having said that, these manes are very oversold and the ones with good balance sheets will survive. In the short run, take a look at some retailers for a potentially nice trade.

American Eagle Outfitters (AEO)

Target Corporation (TGT)

I wrote in my last post about TBT, the Ultra Short 20+ Year Treasury ETF. Yesterday the Fed announced that they would be buying Treasuries in the open market to keep interest rates low to promote economic recovery. This development most likely will put a pause on the TBT. While I still believe that Treasuries are over-bought and that a variety of reasons (eventual move to riskier assets, worries over deficits, inflation) will push Treasury prices lower, there is the old adage, "Never fight the Fed." With the Fed buying it's hard to short the Treasuries. The TBT trade looks like it is on hold for now. I'd get out of TBT or at least reduce one's exposure to it. When the Fed reverses its policy, which it will when the economy recovers, TBT will move fast.

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The commentary in this site is not a recommendation to buy and/or sell any security. This is for information and educational purposes only. Please consult your personal financial advisor and understand the risks when you invest.

TBT - A way to play a possible outflow from US Treasuries

2009-02-21T18:33:00.001-08:00

The TBT is the Ultra Short Lehman 20+ Year US Treasury Exchange Traded Fund. This security moves opposite the US Treasuries (price). There has been a massive inflow of capital into the US Treasury market. Driving this is investor fear, currency turmoil abroad and deflationary expectations. Currently, yields on US Treasuries are at almost all-time lows. The lows were hit recently during the panic environment of the 4th quarter 2008. There is a strong argument to be made that US Treasuries are incredibly overvalued/over-bought. As investor fear subside and as investors will one day regain their appetite for risk, the US Treasury market will decline. An eventual decline in US Treasuries could also be caused by worries over the US budget and trade deficits.

TBT appears to be in an uptrend. During February, TBT has been consolidating into a downward flag pattern. These patterns typically resolve by following the primary trend. A break-out above the flag pattern would indicate a "buy". A breakdown below the primary trendline would indicate a sell. If TBT breaks to upside, the target range would likely be a test and fill of the "gap created in November 2008.

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The commentary in this site is not a recommendation to buy and/or sell any security. This is for information and educational purposes only. Please consult your personal financial advisor and understand the risks when you invest.

Everyone's Talking Financials

2009-02-07T08:33:00.000-08:00

Here is the XLF chart of the week. Let's see if we can cut through the rhetoric and chatter and cut to the chase. It looks like the ETF has formed a nicely defined triangle. Trade the lines. A breakout above the downward sloping line is a Buy signal with a stop if the XLF goes back into the triangle. A breakdown below the horizontal support line indicates a Sell again with a stop if the ETF goes back into the triangle. You need patience to trade triangles. You have to wait till the stock moves out of the pattern.

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The commentary in this site is not a recommendation to buy and/or sell any security. This is for information and educational purposes only. Please consult your personal financial advisor and understand the risks when you invest.