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Wednesday, October 26, 2011

Durable Goods report for Sept just so-so but Computer segment is on fire

The Durable Goods advanced report for September 2011 was released on Wednesday.

I like to dig into the Durable Goods report because it can be useful for seeing how tech in aggregate is performing and how the sector may perform in the future. I always focus on two particular measures: shipments and new orders. Let's see how it played out last month.

Shipments -- 

I generally give less importance to Shipments since this is a backward looking measure reflecting orders that have been confirmed, manufactured and shipped. It's similar to earnings reports -- it's good to know but the data is in the past and we're more interested in the future. The following chart shows how September shipments looked for the overall tech sector:

Results for the overall tech sector were a bit weak but take a look at the next chart which tracks the Computers and related products segment:

Results here were actually quite good and, to make things even better, the previous month was revised upward.

New Orders --

This is the category that gets the most attention as it provides a glimpse of what might unfold in the future. Looking at the sector summary we see some small improvement in new orders.

The moving average is still heading down but both August and September are showing slow but steady improvement. This is a hopeful sign.

The next chart shows the Computers and related products segment:

Here again the results are very good. Indeed, this is 6% improvement over the previous month.

Conclusion --

It's no wonder Intel recently reported good earnings and forecast further growth. The Computers and related products segment has been doing quite well and, if you trust trust the new orders numbers, the segment looks like it will continue to do well. This also helps explain why tech held up so much better than other sectors during the recent downturn.

Unfortunately, it is hard to find an ETF that focuses precisely on this segment. They either have a broad combination of companies from across the tech spectrum (XLK or IWY, for example) or they concentrate on a segment like networking  like IGN, for example, which seems to be struggling in comparison to the broad-based ETFs or even when compared to Cisco Systems.

The best advice then is to put on your stock picker hat and start sifting through the tech sector using a good stock screener such as the ones at that allow you to screen for both bullish trends and solid fundamentals within sectors and/or industries.

Disclosure: no positions in any stocks or ETFs mentioned in this article

Sunday, October 23, 2011

SPY - breakout confirmed?

Since August, the market has been in a funk, plunging at the end of July and then range-bound, more or less moving sideways for two months. The top of the range is notated in the chart below by the horizontal magenta line in the daily chart of SPY, the S&P 500 ETF. On Friday, however, we finally got a decisive move out of the range and above the magenta line.

The question on everyone's minds is: does this breakout have staying power?

Activity in Europe is still the wildcard and is pretty much unpredictable so in this post we'll just stick to the the technicals as we see them.

The view from Alert HQ --

For those readers who are new to TradeRadar or who don't remember what this is all about, the data for the following charts is generated from our weekly Alert HQ process. We scan roughly 6200 stocks and ETFs each weekend and gather the statistics presented below. In this first chart below we count the number of stocks above various exponential moving averages and count the number of moving average crossovers, as well. We then plot the results against a weekly chart of the SPDR S&P 500 ETF (SPY).

This chart reinforces the fact that a reversal has taken place and that a breakout is underway. Three weeks ago, after making some pretty extreme lows, this chart showed a very modest turning up of the yellow and magenta lines. In contrast, last week's charts showed strongly accelerating bullish momentum. Now, this week's chart shows the improvement in the number of stocks above their 50-EMA slowing noticeably while the number of stocks whose 20-day EMA are above their 50-day EMA is still increasing solidly.

This suggests a pause in this recent up-trend is very possible. Note also that the absolute levels of the yellow and magenta lines clearly indicate the market is not yet over-bought and that the newly established up-trend has more room to run.

The next chart provides our trending analysis. It looks at the number of stocks in strong up-trends or down-trends based on Aroon analysis.

This chart tells the same story as the previous chart. The number of stocks in down-trends (red line) has dropped to an extreme low but the number of stocks in solid up-trends (yellow line) is no where near any kind of over-bought extreme. Here we also see a moderation in the bullish action this week as the yellow line registered only a small increase over the previous week's bigger move.

Again, the expectation is for further gains in the market but with a pause very likely.

Conclusion --

The up-trend being discussed in this post should still be considered a short-term trend. It has really only been three weeks since SPY hit a bottom and established a reversal pattern. Clearing the top of the recent range is a positive sign as is the fact that the 50-day moving average has turned up. The fact that there was at least a modest pick up in volume is also a good sign considering that much of the recent rally has been on lower volume. Nevertheless, a powerful trend needs to manifest itself over more than a few weeks. And investors should note that resistance in the form of the 200-day moving average and the June lows will soon come into play. That being said, it is certainly easier to be optimistic about stocks now but equally hard to shake off an attitude of caution.

What else might keep stocks moving in a positive direction? With Europe drowning out most other topics, it is almost easy to forget we are in the middle of earnings season! The good news is that most companies are reporting pretty decent results and, though some forward guidance has been rather less than confident, there are very few companies that are outright bearish in their expectations for the next quarter or two. This suggests the economy will continue to muddle along in slow-growth mode rather than fall off a cliff.

So as long as the politicians in Europe or the U.S. don't mess up too badly, the outlook for stocks over the next few months is starting to look better.

Disclosure: no positions

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