Not every investor should trade technicals, says Keith Newcomb. But for those who do, he's seen some reason for optimism, despite the Europe-driven market whipsaws.
Kate Stalter: I'm talking today with Keith Newcomb, from Full Life Financial. Keith is not only a financial planner, but also a Chartered Market Technician.
So Keith, the market continues seeing a lot of volatility, much of it driven from Europe. From your vantage point, what is the best course of action for individual investors right now?
Keith Newcomb: I think it's important for all investors to be aware of the context of their personal financial plan. Assuming that that's in place, and it's appropriate to be focusing on investments here, then I think there's some good things going for the market at the moment, despite the scary headlines coming out of Europe and the other facets of uncertainty like MF Global's (MF) recent failure.
Kate Stalter: What are some of these good things that you're seeing out there? Because a lot of people are becoming kind of skeptical, understandably, through all the volatility.
Keith Newcomb: Well, understandably so. I think one of the best things going for the market is traditional seasonality. It's favorable from here through, say, early January, and the longer-term breath indicators are confirming that that seasonality's working.
The price action through October also showed us that the market is resilient in the face of this bad news. I think that selectivity among sectors and asset classes is appropriate for investors here, but that all in all, the conditions are beginning to shape up as more favorable than the summer months were, for sure.
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Kate Stalter: Let's talk a little bit about some of the market technicals. As a technician, what are some of the areas that you are seeing as showing strength right now? Maybe first in terms of sectors or industries.
Keith Newcomb: Well in terms of the asset classes, I do favor stocks. And in the stock sectors, US stocks continue to outperform their international brethren, although emerging markets are beginning to pick up some strength, relative to the developing markets here. That indicates that investors are willing to take on more risk to enjoy the potential growth from those areas of the world.
I still favor US stocks. Domestically, the sectors that I like here that are showing good relative strength are consumer discretionary-the strongest sector-energy, utilities, and technology.
Kate Stalter: So those are some areas that have been holding up well recently. You mentioned consumer discretionary, with retail, for example, and in the other areas, you have some dividend payers. Can you mention any stocks in particular that stand out from some of those sectors?
Keith Newcomb: I think most individual investors are probably best served by focusing on sector-oriented investments like the ETFs. ETFs offer a great vehicle for most individual investors, and in the energy area that would be the Energy Select Sector SPDR (XLE), or the Vanguard Consumer Discretionary (VCR) or the Consumer Discretionary Select Sector SPDR (XLY). For utilities, the Utilities SPDR (XLU), and for technologies, the Technology Select Sector SPDR (XLK).
Those all include the larger, better-known names, which are heavier weighted in those ETFs. That that's probably desirable for most investors here, especially in the face of the uncertainty.
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Kate Stalter: What's the timeframe for holding some of these investments, Keith? Are these long-term plays, or should investors be eyeing the charts and watching for any particular sell times?
Keith Newcomb: Investors that are inclined to rely on technicals and like to focus on the charts, I think they'll be seeing that despite the longer-term uncertainties, in the medium term, the charts are looking pretty good through here.
Kate Stalter: What are some of the indicators that you do watch for?
Keith Newcomb: Well, I think the most important indicator is price. Breadth is another. Relative strength is a favorite. So those are the big three that I like to rely on when making investment choices for my clients.
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