Tuesday, April 12, 2011

Bottoms Up!

This week, I suddenly became a fan of bottom up investing after decades of affinity for the top down approach. For starters, traditional technical analysis has been tricky to apply in the age of socialism, er, government intervention. And I say this a member of neither political party because they are all totally off their rockers in DC. I am also a new fan of term limits - as in one term - for everyone in Congress but I am getting way off the topic.

So why my change in view? Over the weekend, as I was preparing Monday's Quick Takes Pro with my staff I noticed that many economically sensitive stocks - the cyclicals - were sitting in precarious positions. Even superstars such as CAT and DE sported bearish RSI divergences so something seemed amiss. Forget that AA sported a possible breakout failure with technical divergences before earnings.

So-so stocks, such as steel, were sitting on important support. Did you see X break down?

And heaven help the weakest in the bunch such as autos and auto parts. We ran a chart yesterday of MGA, an auto parts maker, that cratered in February and continued to bleed money through last week. It broke down again on Monday and is getting clocked again today.  Does GM stand for "good money" that investors threw after bad?

If the economy is on such a nice, but slow, path to recovery then this overall weakness in economically sensitive stocks cannot be good. Tech is weak. Banks are weak. And despite the current correction in oil, it is in a bull trend that is not over.

Bottoms up! And for many of us, that means a pint or three at the end of the work day because it will be needed.

No comments: