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Monday, July 1, 2013

Time to Buy Beaten-Down, High-Yield Stocks

NASDAQ Panelists
 (Photo credit: Think London)
After a 14.3% decline, utilities appear to be constructing a meaningful bottom

The market sold off in the final minutes of trading on heavy volume due to the annual rebalancing of the Russell 2000 index. But stocks had been under pressure for most of the day after a disappointing Chicago PMI report for June. Even a better-than-expected final University of Michigan Consumer Sentiment Index failed to turn prices up.
At Friday’s close, the Dow Jones Industrial Average was off 115 points at 14,909, the S&P 500 fell 7 points to 1,606, and the Nasdaq rose 1 point to 3,403. The NYSE traded 1.8 billion shares and the Nasdaq crossed 1.2 billion. Advancers were slightly ahead of decliners on both major exchanges.
For the week, the Dow rose +0.7%, the S&P 500 was up +0.9%, and the Nasdaq gained +1.4%
Our long-term monthly chart of the S&P 500 with its 17-month moving average (red) shows that we are in a long-term bull market. The numbers at each peak are intraday highs, while the black line is based on closing highs.
This chart has provided buy/sell signals that, if followed, have reaped rewards much higher than holding stocks long term or engaging in short-term trading. Many of our readers’ comments support this statement.
Chart Key
The Russell 2000 small-cap index failed to break out of a possible bullish inverse head-and-shoulders formation and instead plummeted through its 50-day moving average now at 970.
On Friday, the index successfully reversed up through the 50-day moving average and closed on its 20-day moving average. The next resistance is at the top of the gap down at 987. MACD is rising.
The Dow Jones Utility Average suffered a 14.3% decline from its April high to its June low. Our proprietary internal indicator, the Collins-Bollinger Reversal (CBR) flashed a buy signal at the June low of 462, and since then, the index has taken on a more positive tone.
On Friday, it closed above its 200-day moving average at 481 amidst a buy signal from MACD. Its next targets are the June high at 491 and its 50-day moving average at 502. A close above 491 would turn the index positive.
Conclusion: All of the major indices closed the week below their respective 50-day moving average lines. This is the current benchmark, and in a final attempt to rebound through it, each failed. Thus, the second quarter of 2013 ends with the near-term and intermediate trends down, while the long-term bull market is still in force.
It appears that the summer consolidation is now under way with a trading range of 1,560 to 1,620 on the S&P 500 (see June 27 Daily Market Outlook). For traders this can be a useful tool that clearly defines buy and sell points.
There appears to be a move to a “risk-off” posture. Therefore, following a 14.3% decline in utilities, which seem to be constructing a meaningful bottom, higher-yielding stocks are in vogue again. This provides the long-term, quality-oriented investor with a juicy buying opportunity in a host of beaten-down, high-income equities. ...
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