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Thursday July 29, 2010
Rhodes Capital: Technical trades
by Richard Rhodes, editor The Rhodes Report  Technically speaking, the S&P 500 has clearly broken and extended above its major 380- and 200-day exponential moving averages— which after the “failed” breakdown is rather bullish. Here, we look at the technical outlook for the market as well as our latest stock and ETF trading positions in the energy and biotechnology sectors. Moreover, the internal breadth of the current rally is rather strong — and more so since any rally in the past year. This puts the 1130-to-1160 zone as our initial target. The trend is bullish for the time being given last Friday’s breakout above our fulcrum zone of 1088 to 1098, which simply means this zone becomes major support once again. 
Thus, we are buyers against this zone backstop for the time being – understanding that if for any reason these levels are violated – then we would start the process of adding short positions. At present, the internal strength seen in the advance/decline breadth figures remains a main support of the rally, with the past 2-day correction nothing more than a correction prior to a test of overhead resistance at the 1130-to-1160 zone. If pressed, then we are likely to see this develop into the late-August time frame. As to our positions, we like Energy given the upside potential. We have long positions in Devon Energy (DVN), where a key reversal higher from a higher low is bullish. We are also long Tidewater (TDW). We are also adding Biotechnology to our 'long' recommendations given that the sector is gaining material and long-awaited sponsorship. We are buying Gilead Sciences (GILD). Place the stop loss at $32.10. We note that the past 2-day correction is sufficient to become long in our ETF Playbook and we’ll use the S&P Energy ETF (XLE) to do so. We recommend a stop at $51.50. We caution, however, that if the financials lag this rally much longer, then the rally is really rather suspect and prone to failure. This is the risk to the bullish stance at current levels. Learn more about this financial newsletter at Richard Rhodes' The Rhodes Report. |
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