Q&A: 5 sectors showing strength
Agricultural plays and gun makers are performing exceptionally well right now.
By Kate Stalter, MoneyShow.com
In this interview, investing coach Gennady Kupershteyn shares some ideas for sectors showing technical and fundamental strength. In addition to some agricultural stocks, he discusses tech, health care, gun makers, and consumer discretionary names.
Kate Stalter: Today, I'm speaking with one of our frequent guests here on the Daily Guru, Gennady Kupershteyn of Capitalist Bull.
Gennady, where do you see the market right now? We had heavy upside trade last Friday. As we are speaking, we have had a pretty good week -- although on Friday following the jobs report, downside volatility returned. So what is your outlook at this moment?
Gennady Kupershteyn: I'm very bullish right now. The last time you and I spoke was back in April, and the big difference between then and now is setups are working again. You are not getting your traditional setups like your double bottoms, but there is a lot of movement off of moving averages that are working.
And if you are paying attention to some of the bigger leaders, like Apple (AAPL), Priceline (PCLN), and Intuitive Surgical (ISRG), you will find that they are moving up the right side and they are trying to set up for a future move. The nice thing is what I noticed recently is the advance/decline line is making new highs again, and that doesn't happen if we are about to go into a bear market. So the advance/decline line is telling us that the next few months should be pretty good for bullish trade.
Buying patterns sine the bottom in June have been very positive. We pretty much have all accumulations, and even when we get these down days like on the jobs report, you find that there is no volume.
The buyers kind of walk off because we are so early off the bottom, they get a little spooked. They kind of take it easy for a day or two, they let the market drop 1% to 2%, but you aren’t getting the distribution that you would expect on the bad news that we are seeing out of Europe, the economy, and jobs. So it is a really nice market right now.
Kate Stalter: You mentioned a moment ago a few stocks from the tech or health care sectors. You see some potential there at the moment. Let's talk about sectors: Where are you seeing some outperformance right now?
Recently, there was a report by the FBI that background checks for permits for guns is up 25%, and SWHC just had a report the other day that was absolutely phenomenal. They blew away their numbers, and their guidance was well above the high estimate going forward. So something is definitely brewing in that sector.
Homebuilders are acting excellent. They kind of got away from me; it was very hard to get into them. The patterns were a little bit wide, so it is just a sector you want to watch for a pullback.
Then you have the fertilizer stocks that have moved up the right side of their pattern. You are looking at stocks like CF (CF), Agrium (AGU), Rentech Nitrogen Partners (RNF), and even stocks in that group off the bottom, like Mosaic (MOS) and Potash (POT) have confirmed the strengthening in the three that I just named.
You would like to see a pullback in them here before entering, because they pretty much have come straight off the bottom for the last few weeks. Those are the three main strong sectors of groups that I see out there.
Then you are kind of getting random names from retail where you get Coinstar (CSTR), Zumiez (ZUMZ), and Francesca's (FRAN) that are starting to look good over here. As I mentioned earlier, you get stocks like Apple, Priceline, and ISRG, so you are starting to see that leadership build up.
It is normal when you first get a follow-through day, like we did last Friday [June 29], that initially, the first few weeks, it appears that the market has weakened and nothing is working. But right around those first two to four weeks is where you do get those setups, and they start to develop and then they start to break out later.
Kate Stalter: How should individual investors or traders be looking at some of these setups and handling them right now? A number of them seem to have already become extended from buy points. So what should people be doing?
Gennady Kupershteyn: For your conservative investor that generally just waits for the follow-through before considering purchases, they have to now start participating on the pullback. They want to be looking at these early leaders as they come out of their bases, or they come off their moving averages.
Look for the stock that pulled back around a 10-day moving average and look to possibly enter off a 10-day. I don't typically buy off a 10-day once we get deep into a rally, but early on into the rally, most stocks will come back to the 10 at least one time before heading higher.
I know a lot of traders will wait for the 20 or the 50, but those pullbacks have to happen weeks after a follow-through, not just after a follow-through. So if you haven't been participating in this rally, you are not late unless it turns out to be just a correction rally, which at this point, there is no indication that that is what this is going to be.
You do want to be taking advantages of pullbacks like on the jobs report, pullbacks on bad news out of Europe, and essentially the market is ignoring it after the first hour or two. You start to find support and the market starts to head higher. So once you do get the pullback in the market those one or two days, you have got to be looking to buy something off a moving average, or you might just happen to have a setup.
So just like I mentioned earlier, the fertilizers are in an area where they should put on a handle over the next week or two. If they do, you will now have your traditional cup-and-handle that you could go ahead and buy.
Kate Stalter: Let's talk then a little bit about how you might make the decision when it is appropriate to take some profits, or even cut your losses. How would you go about that?
Gennady Kupershteyn: Well, the only time I make a decision to take my profits is when a stock really becomes extended, based on a historical basis based on that individual stock. We are not at that point yet, but there are some stocks that you have to be careful out there with -- stocks like Alexion (ALXN) and stocks like SXC (SXCI). They have been moving for a good portion of this bull market. With stocks like that, you really have to be on the lookout for those upper trend lines.
If you take a look at ALXN, it is probably about 10 points away, 15 points away from its upper trend lines, so you can't be buying stocks like that, thinking, "Oh, I'm going to hold on to them for the next two to three years."
On the other hand, you do have some stocks forming first-stage bases, like the fertilizers, and those type of stocks you want to see if they abide by the rules. If they break out on strong volume, do they have a nice move higher out of the base, and are they acting normally? And then you want to be a little bit more patient with those types of stocks.
Again, the fact that an A/D line went to new highs, that would give me a little more confidence to hold stocks out of first- and second-stage bases, a little bit longer than stocks that are now moving out of later-stage bases. You would be looking for those stocks to climax vs. the newer stock to carry this market further.
More from the MoneyShow
Copyright © 2014 Microsoft. All rights reserved.
VIDEO ON MSN MONEY
Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.
Contributors include professional investors and journalists affiliated with MSN Money.
Follow us on Twitter @topstocksmsn.