Follow the Sector

We've seen some wild swings in the sector indexes during the past week. The Bank Index twice did an about face, Pharmaceuticals are nearing all time highs, Semiconductors are surging and Biotechs are racing higher. Why do I mention this? The sector index is a vital part of technical analysis.

If you are looking only at individual stock charts, you are getting an incomplete picture. You may be aware that most stocks follow the Dow Industrials or the NASDAQ Composite, so you probably look at those charts closely as well.

But are you missing a piece of the puzzle? Be sure to learn about the company. Learn about its fundamentals, upcoming earnings, and especially its sector classification. Most stocks follow a sector index, which also has its own set of support and resistance levels. Stocks react strongly to index movement, more so than broad measures that track exchanges or composites. Each sector index can be charted and examining the chart is highly important for your trading success.

The list of sector indices is long and some sectors have several symbols and grouping variations. Here's a list of the indices I follow daily:

Philadelphia Bank Sector Index: BKX
Amex Biotech Index: BTK
CBOE Computer Software Index: CWX
Morgan Stanley Cyclical Index: CYC
Amex Pharmaceutical Index: DRG
CBOE Internet Index: INX
Amex Networking Index: NWX
Oil Index: OIX
Oil Services Index: OSX
Retail Index: RLX
Philadelphia Semiconductor Index: SOX
Dow Jones Transports: TRAN
Dow Jones Utilities: UTIL
Amex Telecommunications: XTC

Remember this is not a complete list and don't forget the broad measures such as the S&P 500, NASDAQ 100, COMPX and INDU.

Ok, to the charts! We've had some good response to this weekly feature so let's keep it going. Send an email with stocks you would like to see diagrammed, technical analysis questions, or your comments about this column to: traders@splittrader.com

To the charts!

Can you diagram "EXDS"?

I am new to your service, am working diligently to understand all off the info and terminology...your site is beautiful and very knowledgeable, can you diagram "EXDS"

thanks,
cathy

Great chart. EXDS had the wind knocked out of it on April 20th, when the company released earnings and investors became concerned about future profitability. The stock held support at $80, which was a previous consolidation area, but when support broke down it didn't find support until the NASDAQ Composite scored a key reversal on May 24th. The first move was back to the $80 consolidation area, then to $90. Now with the split payable date on Tuesday, 6/20, the stock is really taking off and a number of analysts have lined up behind it with Strong Buy ratings. Next resistance: 100-dma at $113.

Do you have any thoughts on LSCC? Do you think it will be a split candidate soon. It is almost pushing $80.

Also, have you been following BIFS at all?

Darn straight! LSCC last announced a split while trading at $63, so it's likely to happen soon. They didn't wait for earnings either; it last came after a Board of Directors meeting.

As for the chart, the stock is nearing the all-time high of $82.62. It has come a long way to get there though, from lows in the mid-$50s, without much time for consolidation. Although the uptrend is very strong as confirmed by MACD, the semiconductor index will need to stay quite strong to see LSCC stay at new highs without some consolidation or an external news event, because of the length of the leg of the latest move.

By the way, we don't follow BIFS, as it is listed on the OTC bulletin Board.

Split timing for Citigroup

Anyone could do what you are doing with your jumping in and out every week a stock moves. You remind me of after the fact Acampora. He always voices what the markets are going to do after they have been doing it for a month. Any moron could do what you do. What a joke!

Ouch! Well, we're open to criticism, but maybe there is some confusion here. We do try to enter stocks when the upside potential is high. We don't necessarily enter stocks just for the purpose of getting a split announcement and we try to point that out when the play is introduced. During the recent sideways movement of the COMPX, our strategy became buying on dips and selling peaks, because the trend was sideways. In the case of the financials, we bought and sold based on movement in the bank sector index.

Sometimes the best strategy is to pick a stock with a clearly defined trading channel, when you know that you are near support, which was our strategy with Citibank. By the way, this was a profitable play.

I own QCOM and have really taken a bath on it. Pd 121 a share for it. Should I buy more or sell? Also CTXS pd 77 for it and now it is down to 21 Again, would it be wise to buy more . Been watching MC Kesson too as it is starting to pick up finally. What do you think about the super conductor stocks, like scon isco and conductus (CDTS) Thanks!

I can't tell you what to do with your investments, but I can tell you what we look for in a stock that has been beaten down. Just because a stock is trading well below its all time high, doesn't mean that it is a good investment. For one reason or another, stocks establish a trend and then are likely to continue that trend until a period of consolidation and sideways movement clearly establishes a reversal. QCOM appeared to be making that move a week ago, but another round of bad news seems to have once again sent the stock back into its trading channel.

I've noticed when you alert me on a stock there are sometimes several dates given along with your information. One is the date you recommended stock, then there is a payable date of record, and then there is one called the Ex date, I'm a little confused as to what exactly these dates stand for. Would you please explain these dates for me???

Thank You Very Much
William

This isn't a technical question, but there is always a lot of confusion in this area so I'll talk about it.

The Record Date is relevant to the company only for internal accounting purposes. For the purposes of a stock split, it does not matter to investors. You do not need to own the stock by the record date to participate in the split. Contrast this to a cash dividend. An investor would need to own the stock by the record date to earn a cash dividend.

The Payable Date is usually the trading day previous to the actual split. After the close of trading on the Payable Date, the additional shares are actually distributed. If you want to participate in the stock split, you need to own the stock by the close of trading on the Payable Date and maintain your position going into the Ex-date.

The Ex-date is the day that the stock actually begins trading on the split-adjusted basis. All investors who owned the stock at the close of trading on the Payable Date now have an increase in shares (we're talking forward splits here), relative to the split ratio. The price is also adjusted downward according to the split downward ratio.

I was hearing rumors that LXK was talking about a split and now they are going way down. Can you tell me what is going on with them?

Regards,
Sherman

Bad Karma, I'm afraid. The CBOE hardware index began a precipitous slide on May 2nd and the maker of laser printers went with it. Unfortunately, just at the time that the NASDAQ Composite (the tech barometer) was making a key reversal from its lows on May 24th, LXK received a downgrade from Bear Sterns. As a result, LXK has headed lower while the Techs went the other way.

That's all for this week.
Good Luck!
Steve Pekarek

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