There’s no denying the last few weeks have been very bullish for stocks with major indices recording multi-year highs, and that’s why MoneyShow’s Tom Aspray is taking a technical look at several stocks that will look attractive when the inevitable pullback occurs.
The weaker than expected Pending Home Sales hit the market in early trading but once again the selling was well absorbed and the close was mixed. While the Spyder Trust (SPY) was down just a fraction, the Philadelphia Housing Sector Index (HGX) was down 1.7%. Bargain hunters in Apple Inc. (AAPL) pushed the Nasdaq 100 into positive territory for a change.
We get more data on housing today with the S&P Case-Shiller Housing Price Index and also a new reading on the health of the consumer with the latest data on consumer sentiment. The stock index futures are down in early trading and a close below Monday’s low could trigger the first meaningful correction for the month.
So what stocks should you consider when the market corrects? This week’s cover story in Barron’s The Next Boom makes the case for the resurgence of the US manufacturing sector. In particular they have picked eight stocks that they expect to benefit in the “gas fueled manufacturing upswing.”
The article provides a very good analysis of the fundamental case for each of the companies, and I would suggest you pick up a copy if you are not already a subscriber. I took a technical look at all eight stocks and isolated those companies that I think look the best from a technical standpoint. These stocks should be considered for purchase on a significant pullback.
Chart Analysis: Calpine Corp. (CPN) is a $9 billion dollar producer of gas powered electricity that made a new 52-week high on Monday as it surpassed its quarterly R1 resistance at $19.19.
- The weekly chart shows that two weeks ago CPN completed a nine month flag formation, lines a and b.
- The 127.2% Fibonacci retracement target is at $19.90 while the width of the chart formation has upside targets in the $22-$22.50 area.
- The weekly relative performance has also completed its triangle formation, lines c and d, but is still below the highs made in 2012.
- The weekly OBV has moved well above its downtrend, line e, as it has risen sharply recently.
- There is first support now in the $18.80-$19 area with more important at $18.25.
- The rising 20-week EMA is at $17.90 with the quarterly pivot at $17.83
LyondellBasel Industries NV (LYB) is a specialty chemical company whose stock price has skyrocketed since it emerged from bankruptcy in early 2010. On Monday it closed below the prior three-day lows, which may be the start of a correction.
- The weekly chart shows a long-term bullish pattern and it started off the New Year by closing well above the resistance at $56.25 (line f).
- It is now just 2.4% below its weekly starc+ band at $65.70.
- There is a wide gap between the current price and the 20-week EMA at $54.30, which indicates that it is overbought.
- The relative performance has confirmed the new price highs and shows a long-term uptrend, line h.
- The on-balance volume (OBV) also shows a long-term pattern of higher highs and higher lows.
- The OBV just barely dropped below its WMA last November as LYB pulled back to its 50% retracement support.
- There is next support at $60 with more important at $57.30 and the quarterly pivot at $54.54.
NEXT PAGE: 2 More Up-and-Coming Stocks
|pagebreak|Nucor Industries (NUE) is a $14.9 billion dollar steel company that currently yields 3.1% and it reports earnings before today’s open.
- The major downtrend, line a, was overcome just before Christmas and NUE has accelerated to the upside over the past four weeks.
- The close last Friday was quite close to the weekly starc+ band as the quarterly R1 resistance at $47.22 has been exceeded.
- The three-year downtrend in the relative performance, line c, was broken just before the end of the year.
- The RS line has now clearly completed its bottom formation.
- The OBV has been rising sharply over the past six weeks but is still below its long-term downtrend,
line d. - The daily technical studies did confirm the recent highs.
- Last week NUE formed a doji (a sign of decision) and a weekly close below $47.18 would be a short-term negative.
- There is first support now at $45.30-$45.80 and then at $44. The quarterly pivot is at $42.46.
Williams Companies (WMB) is a $21.9 billion dollar oil and gas pipeline company that currently yields 3.9%.
- WMB bottomed at $30.12 in the first part of December and has risen almost 14%.
- There is next resistance at $36 with the quarterly R1 resistance at $37.54.
- The upper weekly trend line is now in the $40-$41 area.
- The RS line is just barely above its WMA and is so far it is holding the long-term support at line g.
- There was a volume spike in late December and the weekly OBV is back above its WMA but still below the previous highs.
- The daily RS and OBV are positive and rising.
- There is initial support now at $33-$34.
What it Means: Of the four companies only Williams Companies (WMB) is not currently near its weekly starc+ band and it was originally recommended on December 26.
I have noticed that sometimes after a stock is featured in Barron’s, it will rise for a few weeks before it corrects. The weekly analysis of these stocks does indicate that they can continue to do well in 2013. Two are part of the materials sector, which is one of the best performing sectors I discussed on Monday.
How to Profit: For Calpine Corp. (CPN), go 50% long at $18.52 and 50% long at $18.06, with a stop at $17.34 (risk of approx. 5.2%).
For LyondellBasel Industries NV (LYB), go 50% long at $56.32 and 50% long at $55.06, with a stop at $53.81 (risk of approx. 3.4%).
For Nucor Industries (NUE), go 50% long at $44.84 and 50% long at $43.96, with a stop at $42.17 (risk of approx. 5%).
Portfolio Update: Should be 50% long Williams Companies (WMB) at $32.10. Use a stop at $31.42 and sell ½ at $37.26.
Portfolio Corrections and Omissions from “Charts in Play” portfolio
Should be 50% long Bank of America (BAC) at $11.04. Cancel order to add. Use a stop at $10.83.
Should be 50% long iShares MSCI Indonesia Investable Market Index (EIDO) at $30.44. Cancel order to add. Use a stop at $29.29.
Should be 50% long Stone Energy (SGY) at $21.92. Cancel order to add. Use a stop at $20.18.
Should be 50% long iShares MSCI Singapore Index (EWS) at $13.60. Cancel order to add. Use a stop at $13.15.
For SPDR S&P Homebuilders (XHB), should be 50% long at $25.69, with a stop at $25.17. Sell ½ at $30.24.
For Wright Medical Group (WMGI), use a stop at $19.94.