Sectors with Bottom Formations

No matter how bearish your fundamental thesis is on the following sectors, it's hard to deny that price and volume are showing bottoming formations in financials, casinos and real estate.

Here is what I wrote about these sectors in the Trade Report to start the week:

I have narrowed my list of stocks this week, focusing more on sectors. I also am not labelling sectors as bullish or bearish, since I've been reversing biases as extremes in buying and selling dictate. Here is how I am grouping them:

The beaten down sectors that were oversold but quickly became short term overbought. Well, they still look like bottoming patterns since the recent pullbacks have been on low volume. If one buys the bottoming thesis, it could be time to reverse again and go long.

Financials: SKF to short and UYG long.
Real Estate: SRS, TOL, DHI, HOV
Ailines: CAL, UAUA
Casinos: LVS, MGM, WYNN

These sectors have made strong moves this week, and the bottom formation thesis is still in tact.















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CAL setup

I mentioned earlier today that I entered to airline stocks. Both CAL and UAUA have similar setups.

CAL shows a classic bottoming formation. Note the volume pattern. Entry close to the moving average is ideal, with the upside target at the first sign of strong resistance. I may buy more tomorrow on early morning weakness.

Why Do You Like DUG

Here is an e-mail I received today:

MS,
Why do you like DUG so much? It looks to me like you are trying to pick a top in oils, just like you are trying to pick a bottom in SSO. Don't fight the trend man. SSO is going lower and DUG is too.

Before I get to the DUG trade, let me reiterate that I am not picking a bottom in the S&P 500. I am only playing for a bounce while using tightly monitored risk management. If I'm wrong, I'll lose a little and move on. If I'm right, I'll make a nice chunk of change.

Here's why I like DUG:

1. Nice looking bottoming pattern.
2. RSI breaking out.
3. Excellent volume pattern during the bottoming formation.
4. Good reward to risk ratio.

QID Pattern

We've got a nice bottoming formation forming in QID, which is short the Nasdaq. I took a small position on the pullback (Nasdaq strength) today, and may take a bigger position on either more of a pullback or break over resistance.

I am using this as a hedge on any long positions I may take. However, it's not time to take a big position, since stochastics are overbought.

Today's Trade Entry: ACH

I bought 300 shares of ACH at an average price of $43.08. I usually don't make long entries on beaten down stocks or sectors, but China stocks are due for a bounce and today's strong breakout offers the type of volume catalyst that could be good for a few points. I like the fact that price, OBV and RSI made higher lows (stochastics did not), and we have some room until we hit major resistance.