The next near-term support area for SPDR S&P 500 ETF Trust (SPY)—a good area for writing c...
One Sector Under the Influence
08/06/2013 10:30 am EST
While the S&P 500 broke to another all-time high last week, not all sectors participated, and MoneyShow’s Tom Aspray goes in search for the next market-leading sector.
The Dow Industrials finally corrected Monday but once again the selling was quite light as the market internals were just slightly negative. More importantly the Nasdaq Composite was once again able to close higher. The stock futures are slightly lower in early trading.
Since the June lows, some sectors, like the regional banks, have been leading the market higher. The SPDR Regional Banking ETF (KRE) is up 17.6% from the June lows while the Spyder Trust (SPY) is up just 8.4%.
In previous articles, I have discussed many free technical analysis sites including Finviz.com. One of the features of the site that I like is how you can scroll through charts of the various industry groups to see how they are performing.
This chart of the Beverages-Wineries & Distillers is from their Group screener. Then when you move the cursor over the chart, you get a detailed review of the group, including the number of stocks that are included, as well as its weekly, monthly, quarterly performance, etc. If you click on the chart, it then takes you to small candle charts of all the stocks in the group.
The chart of the group shows that it has just broken through resistance at line a, which reasserts the overall uptrend. The correction from the May highs did violate the uptrend from the lows early in the year, line b. There are two companies in this group that are well-known distributors of bourbon, which has seen a dramatic increase in demand. Their charts suggest both should be considered for new investment.
Chart Analysis: The daily chart of the DJ Distillers & Vintners shows the close last week above the July highs, line a.
- In May, the high was 169.21, and it reached a low of 154.15 in June, which was a correction of 8.9%.
- There is initial support now in the 164.50 area with the rising 20-day EMA at 163.10.
- This level could be tested on a pullback.
- The monthly pivot is at 161.70 with the uptrend, line b, at 161.
- The downtrend in the relative performance that goes back the late April high, line c, has just been broken.
- A move in the RS line above the July high will confirm that this group has again become a market leader.
Brown-Forman ‘B’ (BF.B) is the actively traded voting stock of the $15.6 billion dollar company that yields 1.60%. About 70% of the company is owned by the Brown family. Jack Daniel’s, Woodford Reserve, Early Times, and Old Forester are some of the bourbons that they produce.
- The stock’s high last week was very close to the May high of $74.29.
- In March 2009, the bear market low was $23.31.
- The relative performance broke the downtrend from the April high, line a, in early July.
- It does show a completed bottom formation even though it is just below its WMA.
- The OBV is acting even stronger as it surged sharply in early July overcoming the year’s resistance at line f.
- The OBV is acting stronger than prices so any pullback should be well supported.
- The rising 20-day EMA is at $71.90 with further support, line d, at $71.15.
- This corresponds to the mid-June highs.
- The quarterly pivot is at $69.38, which now represents major support.
NEXT PAGE: How to Profit|pagebreak|
Beam, Inc. (BEAM) is a $10.6 billion distiller of Jim Beam, Maker’s Mark, Old Grand-Dad, Old Crow, as well as high-end single-barrel bourbons, Baker’s, Basil Hayden’s, and Booker’s.
- The resistance at $66 has been tested over the past few days but it hit a bull market high of $69.78 in May.
- This was well below the 2007 high of $90.80 and BEAM’s all-time high in 2005 was at $96.18.
- The downtrend in the relative performance, line e, is now being tested along with its WMA.
- The on-balance volume (OBV) has been holding up much better than prices after confirming the May highs.
- The OBV shows a pattern of higher lows, line g, and is now trying to overcome resistance at line f.
- The rising 20-day EMA at $64.89 represents first support with the quarterly pivot at $64.38 (line c).
- The daily uptrend, line d, is in the $64 area with the early July low at $62.66.
What it Means: These two bourbon distillers do have positive-looking charts and volume patterns while being in a sector that is just starting to lead the market again. The key is that one needs to buy below current levels so that the risk can be controlled.
In one of the first trading lessons of the year, 5 Rules for Success in 2013, I encouraged all readers to start doing their own research and work on becoming their own analyst. A site such as finviz.com can be a good resource for doing your own research.
How to Profit: For Brown-Forman ‘B’ (BF.B), go 50% long at $71.46 and 50% at $70.88, with a stop at $68.87 (risk of approx. 3.2%).
For Beam, Inc. (BEAM), go 50% long at $65.06 and 50% at $64.42, with a stop at $62.24 (risk of approx. 3.9%).
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