Digging for Bargains

08/12/2014 10:30 am EST

Focus: ETFS

Thomas Aspray

, Professional Trader & Analyst

Though a market bottom has not been confirmed yet, MoneyShow’s Tom Aspray has dug up one ETF and two stocks that appear to be bottoming ahead of the overall market.

Stocks gave up much of their early gains by the close as the heavy buying from last Friday appeared to dissipate. The bottoming signals that preceded the rally suggested a rebound before the market again moved lower.

Though Monday’s price action did not change this view, the market internals were stronger than prices as advancing issues led decliners by almost a 3-1 margin. Still, as I discussed in last week’s market review, quite a bit of work needs to be done to signal that the correction is over.

There are quite a few stocks that gave technical warning signs in June (Three Reasons to Sell) and have corrected significantly from their recent highs. Now that they have dropped back to stronger support, there are signs from the volume analysis that the worst of the selling is now over.

One ETF and these two stocks fit this criteria but the risk must be controlled by paying close attention to your entry level.

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Chart Analysis: The SPDR S&P Oil & Gas Exploration & Production (XOP) is a broadly based energy ETF with 84 holdings.

  • XOP tested its weekly starc+ band in June (see arrow) before starting its six week correction.
  • With last week’s close, XOP had declined 9.5% from its high at $84.04.
  • It also tested weekly starc+ band in October as it made a high of $73.76 before correcting down to $63.67.
  • XOP reached its lower starc band just two weeks ago.
  • The relative performance did confirm the June highs before dropping below its WMA.
  • The RS line has turned up but is still below its WMA.
  • The weekly OBV closed at new highs last week after a pullback to its WMA.
  • The OBV is clearly acting stronger than prices.
  • There is weekly chart resistance at $80.36 with the weekly starc+ band at $84.36.

The daily chart shows that XOP moved above its 20-day EMA at $76.76 but then closed back below it.

  • The monthly pivot at $76.58 was also tested with the daily downtrend, line d, at $78.36.
  • The quarterly pivot is at $78.97 with the monthly projected pivot resistance at $80.58.
  • There is initial support now at $74.50-$75.50 and the 50% support at $73.75 was briefly violated last week.
  • The daily RS line has just moved back above its WMA and has broken its downtrend, line e.
  • It does not yet show a completed bottom formation.
  • The daily OBV has turned up from support, line f, and rebounded back to its WMA.
  • The daily technical studies do suggest we are likely to pullback into last week’s range as part of the bottoming process.


NEXT PAGE: Two Stocks to Watch


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Phillips 66 (PSX) dropped to a low four weeks ago at $78.53, which also corresponded to the January 2014 high. This support has been tested over the past five weeks.

  • PSX is just over 5% below its high and has a current yield of 1.93%.
  • A weekly close above $83.41 will be a short-term breakout with the weekly starc+ band at $88.53.
  • The weekly relative performance has moved back above its WMA.
  • The RS line appears to have held support at line b.
  • The weekly OBV has held firm over the past few months.
  • Last week the OBV turned up from its WMA.
  • A breakout above the resistance, at line c, would be bullish as it would confirm that it is leading prices.
  • There is initial support at $81.50-$82.50 and then in the $80.50 area.

Atwood Oceanics (ATW) is 16.5% below its 52-week high of $58.76. It is down 7.9% YTD.

  • The weekly chart shows that $47.30 has held over the past two weeks.
  • There is further support in the $45.50-$46.50 area (line f) which includes the weekly starc- band.
  • The weekly relative performance did break its downtrend in mid-June.
  • The RS line is trying to bottom, line h, and a move above the recent highs will complete the bottom.
  • The weekly OBV moved back above its WMA last week, triggering an AOT buy signal.
  • The daily OBV (not shown) has turned up but is still well below its declining WMA.
  • The 20-day EMA is at $49.16 with further resistance at $50.46-$51.36.

What it Means: Many of the oil stocks topped a few weeks ahead of the overall market and the positive weekly OBV formations do suggest that their corrections are ending. Another wave of selling could take all three back to stronger support so don’t chase these stocks.

How to Profit: For SPDR S&P Oil & Gas Exploration & Production (XOP) go 50% long at $75.12 and 50% at $73.88 with a stop at $71.94 (risk of 3.4%).

For Phillips 66 (PSX) go 50% long at $82.66 and 50% at $81.12 with a stop at $78.33 (risk of approx. 4.3%).

For Atwood Oceanics (ATW) go 50% long at $48.44 and 50% at $47.62 with a stop at $45.97 (risk of approx. 4.3%).

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