There are different ways to view best seasonal stocks depending on whether you're interested solely in average returns for a particular month or time period or if you're interested in the percentage times that a security rises for a particular month or time period. Thus, is consistency more important or the absolute returns? I'll concentrate on the latter. The following list of stocks highlights the best performing stocks during the month of November on the S&P 500 (average November returns):
The EW S&P 500 ETF, S&P MidCap SPDR and S&P 500 SPDR moved to new highs this week, but the S&P SmallCap iShares and Russell 2000 iShares are lagging and remain below their early October highs, which were 52-week highs. The PerfChart below shows the performance for seven major index ETFs this month. SPY, MDY, QQQ and DIA are leading with gains exceeding 2%. IJR and IWM are lagging with gains around 1%.
The fact that U.S. rates are rising faster than elsewhere on the globe is boosting the dollar. A rising dollar usually hurts the price of gold. And it is. Chart 1 shows the upturn in the Dollar Index (UUP) near the start of September (when Treasury yields turned up) coinciding with a decline in gold (GLD). It also makes economic sense that a stronger global economy would favor stocks tied to industrial metals (like aluminum, copper, and steel) over gold. And that is certainly the case. The rising brown line in Chart 2 is a ratio of the copper miners ETF (COPX) divided by gold miners (GDX). The ratio recently hit a new high for the year (thanks to a three-year high in the price of copper). Notice how closely the copper/gold mining ratio has tracked the 10-Year Treasury yield (green line). The fact that both lines are rising together is a vote of confidence in the global economy.
I recently wrote about Gold in the DecisionPoint blog. We saw the 20-EMA pull out of its decline to keep its ITTM BUY signal. However, the gravitational pull of price after it couldn't hold support at 1300 was too much and the 20-EMA finished just below the 50-EMA today. An ITTM Neutral signal is generated when the 20-EMA crosses below the 50-EMA while the 50-EMA is above the 200-EMA. Recall that if the 50-EMA is above the 200-EMA, it implies that bull market rules should be applied. With that in mind, a negative crossover is a neutral rather than a SELL if the 50-EMA is above the 200-EMA.
Earnings season is in full swing now and so far so good. How do I know this? All you have to do is look at the overall market reaction. And it doesn't hurt when a giant tech company left for dead knocks it out of the park.
Take a look at the chart below on IBM, a company that has been lagging the market for a long time. but with one earnings announcement IBM reminded the market it still has some life in it, climbing 10% after reporting a blowout quarter.
You can see from the price and volume action how pleased investors were with the results. IBM is still well off its March high but now it's at least back in play with potentially lots of room to move higher, especially if the overall market continues to rise. But with the big move it's already made it now makes sense to be patient and let the stock pullback some or at least consider averaging in just in case the stock give back some of the nice gains.
By the time earnings season winds down over the next 2-3 weeks there are going to be an awful lot of high reward to risk trading candidates, again, for those who are patient. This is what we teach at EarningsBeats. In fact, Tom Bowley and I conducted a webinar recently where we discussed how to approach earnings season, including stocks that could move higher into their respective earnings reports, as well as those who report and get a positive reaction. Powerful stuff! If you would like to view the video recording just click here.
Traders are always searching for stocks that have the potential to move higher and earnings season always presents great opportunities. Think about it; would you rather get involved in a stock that had weak or strong earnings results? And better yet, if you can uncover those stocks that report strong numbers AND have strong charts, better yet. But remember that being patient is the key. Let a company report its numbers, watch the market reaction, key in on the best of the best and wait for a pullback to a key price or technical support level to put your money to work.
At your service,
They say how time flies; and it's true, especially from one earnings season to another, and starting this week we're going to start hearing from thousands of companies as they release their numbers. And boy, there's nothing traders and longer term investors care about more than earnings.
This makes total sense. Think about it. Companies cannot control everything swirling around them. What they can do is adapt to the times, adjust their strategies as necessary and stay focused while delivering strong results for their shareholders.
One thing is for sure; traders gravitate to those companies that report solid earnings, especially those who beat bottom and top line expectations. And you should focus on some of these winners as well.
For example, Micron Technology (MU) recently reported its earnings and as you can see from the cart below it gapped up sharply on extremely heavy volume.
This big spike in volume shows great interest in the stock; everyone loves a winner. And the stock broke above a high it last saw in December, 2014. Pretty impressive!
We saw this pattern repeated over and over last quarter where a company would beat earnings expectations and gap up on strong volume. The other thing we saw? Patience rewarded. In other words, those traders who watched how the market reacted to a specific earnings report and then waited patiently for a pullback were handsomely rewarded.
As another example, take a look at the chart below on KORS, one of the stocks we watched closely and at the right time sent a trade alert to our members:
In this case, once the initial excitement settled down and the stock pulled back to its 20 day moving average, we issued the alert to members with the stock becoming a very nice winner, gaining 9.3%.
The whole concept behind EarningsBeats is to scan for those companies that beat earnings expectations - both earnings per share and revenue - and also have nice looking charts. Some of these become trade alerts for members. In fact, I will be conducting a Webinar this Monday, October 9, at 4:30 pm eastern and will be joined by StockCharts.com Senior Technical Analyst Tom Bowley as we show attendees how to scan for companies that beat earnings expectations (including some high reward to risk trading candidates) and how to establish a StockCharts.com Chart List, a powerful trading tool. To learn more and register just click here
And with earnings season about to begin, timing couldn't be better!
Earnings season presents some great reward to risk opportunities, especially for those who exercise great patience. Honing in on those stocks that exceed market expectations can indeed be profitable.
At your service,
Chart 1 shows the Powershares QQQ ETF hitting a record high this week. It was the last of the major stock indexes to do so, and its breakout is a positive sign for the market. It also did slightly better than the rest of the market. The QQQ, however, has still been a relative laggard over the last month. That's shown by the falling QQQ/SPX ratio since the start of September (blue line). This week's upturn in its RS line may be a sign that some funds are flowing back into large tech stocks. But there's more going on beneath the surface with the QQQ. For one thing, comparing the QQQ to the S&P 500 doesn't fully reflect QQQ recent underperformance. That's because the S&P 500 itself has been an underachiever over the last month (relative to smaller stocks). To get a truer picture we have to compare the QQQ to the groups that have been getting most of the tech money. Financials have been the biggest beneficiary of the past month's rotation out of techs. That's been tied to the upturn in bond yields, and expectations for another rate hike in December. The reasons why financials usually outperform techs when rates are rising have been described in previous messages. Let's compare their recent relative performance.
Anyone still doubting that a significant sector rotation has been going on need only look at the next chart. The blue bars in Chart 2 plot a relative strength ratio of the PowerShares QQQ divided by the Financial Sector SPDR (XLF). The bars show the QQQ underperforming the XLF by a wide margin since the start of June, and again during September. Since the start of June, financials have nearly tripled QQQ performance (14% versus 5%). Since the start of September, financials have outperformed the QQQ by a 7% to 1% margin. Rising bond yields have been the main reason why. And signs of a stronger economy. Three other economically-sensitive sectors outperforming the QQQ over the last month are the industrials (including transports), energy, and materials. That shows that money has also been flowing into parts of the market that do better in a climate of rising rates and a stronger economy. Those three sectors have doubled the performance of the QQQ over the past month. They also hint at rising inflation.
I've been following the stock market for a long time and I'm always searching for that perfect signal that never fails. I still haven't found it and there are never any guarantees in the stock market, BUT following the rotation of money to aggressive areas of the stock market can provide fairly reliable confirmation that a bull market rally is sustainable. The four relative ratios that I rely on the most are the following:
The Energy SPDR (XLE) is the top performing sector SPDR since mid August with a double digit advance over the last seven weeks. On the price chart, XLE broke out of the channel, exceeded its summer highs and pushed RSI above 70 for the first time this year. It was a remarkable move, but the ETF is short-term overbought and ripe for a corrective period, which could involve a pullback or a consolidation.
Where might a pullback find support and reverse? I am watching the summer highs, the Fibonacci Retracements and RSI for answers to this question. A key tenet of technical analysis is that broken resistance turns into the first support level. XLE broke resistance in the 65.5-66 area and this area turns first support to watch on a pullback. Also notice that the 38.2% retracement resides in this area. This is the minimum retracement expected on a correction.
The indicator window shows RSI failing to break above 60 from January to August. It is typical for RSI to fail in this area during downtrends. The opposite holds during an uptrend. If a bigger uptrend is indeed emerging, I would expect RSI to hold the 40 area on any pullback and would look for a pullback to end when RSI enters the 40-50 zone.
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Thanks for tuning in and have a good day!
--Arthur Hill CMT
Plan your Trade and Trade your Plan
Today all but the NDX garnered new PMO BUY signals in the intermediate term. The intermediate-term PMO signals are gathered from the weekly chart PMOs and their crossovers. I'll give you a peek at the NDX weekly chart too, but it is much further away from a new weekly BUY signal. In fact, the NDX weekly chart looks surprisingly bearish.