Three Picks For Bond Sellers

by Tom Aspray

Stocks put in another good performance on Tuesday as the market was acting well heading into the widely anticipated FOMC announcement and Bernanke press conference. The short-term downtrends in the Advance/Decline lines have now been broken suggesting that the correction is over.

Rates were higher on Tuesday making further outflows from bond funds likely as we head into the summer. This is consistent with more gains for stock holders and more nervous times for bond holders.

Though overall volume has been light, both the weekly and daily OBV are positive for the Spyder Trust (SPY), as well as the PowerShares QQQ Trust (QQQ). The confirming OBV signals are a positive for the market but that does not rule out more choppy and volatile trading. The action this afternoon could be wild.

It looks as though the technology sector and small-cap sectors are ready to lead the market higher. I have three picks that look like they should be part of all portfolios, especially those that have lots of cash.

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Chart Analysis: The Spyder Trust (SPY) shows that the June 10 highs were overcome on Tuesday’s close.

• There is next resistance for SPY at $166.59 and then at $167.78.
• The all-time high is at $169.07 with the weekly starc+ band now in the $172 area.
• The downtrend (line a) in the NYSE Advance/Decline line has been broken, and it is above its WMA.
• There is good support now at the uptrend, line b.
• The McClellan oscillator has broken its downtrend, line c, and according to Reuter’s data made lower lows last week.
• Two other data sources reflect higher lows but all show completed short-term bottom formations.
• The 20-day EMA is now at $163.91 with the monthly pivot at $163.54.
• More important support for SPY at $161.30 to $160.35.

Wal-Mart Stores Inc. (WMT) was a favorite profitable pick early in the year and the stop on the remaining position was just hit at the end of May. It has a current yield of 2.5%.

• The weekly and daily charts show bottoming formations as WMT dropped between the 38.2% and the 50% support level at $73.55.
• This typically sets up good buying opportunities for stocks that are in major positive trends.
• The daily chart also shows that an HCD was triggered with Tuesday’s close.
• The relative performance is holding above its recent lows and a break of the downtrend, line d, would be positive.
• The daily OBV has turned up from support at line e, and is back above its WMA.
• A close above the recent weekly highs at $76.65 and $76.87 would be a further sign that a bottom was in place.

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PowerShares QQQ Trust (QQQ) tested the support in the $71.50 area (line a) twice this month and then closed just below the swing high at $73.82 on Tuesday.

• There is additional resistance at $73.76 and then at $74.54.
• Once above the May high at $74.93 the 127.2% Fibonacci target is at $75.89.
• The Nasdaq 100 Advance/Decline has already completed its bottom formation.
• The A/D line has broken its downtrend, line b, and moved above its previous high.
• The OBV (not shown) is above its WMA but still below the previous high.
• There is short-term support now at $72.82 and the monthly pivot.

Intuit Inc. (INTU) was hit hard in April when it lowered its guidance but it had traded as high as $68.41 in March.

• INTU now appears to be holding the 38.2% support at $57.21.
• The spike low in April was $55.54.
• The relative performance is trying to bottom out, line f, with key resistance at the long-term downtrend (line e)
• The OBV has been in a strong uptrend, line h, since late April.
• The OBV is now very close to breaking its downtrend, line g.
• There is next resistance for INTU at $59.71 and then at $60.98.

What it Means: The daily technical indicators suggest that the worst of the selling is over, though the wild card for today is obviously the Fed. Any selling in reaction to the FOMC is likely to be short lived as the action in the PowerShares QQQ Trust (QQQ) and iShares Russell 2000 Index (IWM) is quite bullish.

All three of these picks look attractive and Wal-Mart Stores Inc. (WMT) has a higher yield than the 10 Year T-Note.

How to Profit: For Wal-Mart Stores Inc. (WMT), go 50% long at $75.51 and 50% long at $75.12, with a stop at $73.14. (risk of approx 2.9%).

For PowerShares QQQ Trust (QQQ), go 50% long at $72.84 and 50% long at $71.88, with a stop at $69.28 (risk of approx 4.3%).

For Intuit Inc. (INTU), go 50% long at $58.43 and 50% long at $57.78, with a stop at $55.31 (risk of approx 4.8%).

Portfolio Update: Longs in the ProShares UltraShort S&P 500 (SDS) from $39.55 were stopped out at $38.93 for an approximate loss of 1.6%.

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