Do you know what a “trend change” is? When a stock (or a mutual fund) has been above its’ support line, it’s in a positive (or upward) trend.
When that stock breaks the support line and starts moving down, you really don’t want to own that anymore. Because the general trend has changed – from something that has been trending up — to one that is now starting to move down.
But trend changes are subtle. They don’t happen overnight — or like a light switch. It’s more like dimming the lights. Before you know it, the room is almost dark.
Most people are either oblivious, or reluctant in admitting the situation is changing. And this is where trouble (and the losses) begins for most investors. They just have to be receptive to change.
Let’s look at the energy sector.
In September we pointed out the following facts:
Crude Oil had just violated the support line going back to 2003 (when it broke through $68). This means that “supply” was now in control of Crude Oil. The trend was heading lower.
Back then, the Oil Service sector registered a relative strength sell signal for the first time since 2004, after a 75% move up.
Many Oil and Oil Service stocks were breaking the support lines set back in March and June – even while the overall market was pushing higher.
Look, “supply” continues to take more and more control of the energy sector. Crude Oil broke another important support level at $58 — and now just broke another at $53. Also, more of the energy-related Exchange Traded Funds (ETFs) have given relative strength sell signals.
However, if you look at *only* the stock price — and not look at the charts, you’d find most of these energy-related names are trading right about where they were in September.
The dimmer switch is slowing darkening the room for energy. Hey, if you’re not watching these subtle changes, the room will be dark.
And you won’t even realize it.
Alexander Graham Bell said “When one door closes, another opens; but we often look so long and so regretfully upon the closed door that we do not see the one which has opened for us.”
In the market, there are several areas for new investments. The offensive team remains on the field today. Here are just a few:
The Transportation Sector shows good relative position. After a couple of months of consolidation from this group, it appears to be poised for another leg higher.
Real Estate Investment Trusts (REIT’s) have been a strong area for a number of years now. The group continues to hold the number one position among all sectors. You might be moving out of some energy stocks which provided dividends. REITs should be a logical place to replace those dividends.
A few pockets within technology continue to show strength. Specifically, Telecom and the Internet area (but not names like Ebay, Yahoo, and Amazon), are making moves now.
More than ever, individual stock selection really matters. The difference between the best performing and the worst performing groups continues to narrow.
We mentioned previously that Sun Micro (SUNW) is a stock with some key technical breakouts worth looking into.
There are more names like that we should be buying. Let’s book a time to talk about these specific stocks/ETF’s. Call Liza this week at (732) 223-9000. She can set up a 20 or 30 minute window for us to review and get your account pointed in the right direction.