Trades for a Bi-Polar Market (Part I)

• Posted by Greg Harmon
• on December 12th, 2011

I cannot tell you how many times lately I have read descriptions of the market calling it bi-polar. Seems aptly applied right. Up 2% one day back down 2% the next and then up 3% and back down. It makes it hard to prepare sets to trade. Some would suggest that you just sit on the sidelines and watch. That preserves capital, safe enough. But there are a couple of sectors where there is almost a rotation among the stocks, with some leading and then giving way to others to pick up the pace. Like the peloton in bicycle racing. Tobacco stocks is one of those sectors. Let’s take a look from best to worst.

The Leaders

Altria Group, $MO

Altria Group, $MO, is breaking above an ascending triangle and heading to new highs. As it moves higher the Relative Strength Index (RSI) is bullish and the Moving Average Convergence Divergence (MACD) indicator is positive. Both supporting more upside. A continued move over 29 establishes a target on a Measured Move to 30.50. This is the strongest of the group but right behind it is British American Tobacco Industries, $BTI. After breaking above the Diamond Continuation pattern it retested and is moving higher, now in a bull flag. The RSI is trying to turn bullish while the MACD is already signaling higher. A move up over 95 and it will be the leader again. A strong chart but not yet ready to break out higher.

British American Tobacco Industries, $BTI,

The Laggards

Reynolds American, $RAI

Reynolds American, $RAI, was rallying into the end of November but has been pulling back in a bull flag since. The RSI is trending lower and the MACD has crossed negative, both supporting more downside and perhaps turning the bull flag into a reversal. But it had clearly been a leader for the second half of November. If this move lower continues under 39.50 the trend turns bearish with support lower at 39 and then 37. It’s partner moving lower is Lorillard, $LO. The worst looking of the bunch, it is now back in the previous channel between 112.10 and 107.10 and heading lower. The RSI trending lower and moving through the mid line, and MACD about to cross negative both support more downside.

Lorillard, $LO

Keep this sector in mind if these bipolar days continue. There are likely to continue to be both winners and losers allowing for trades on both the upside and downside from these stocks. Tomorrow, another sector like this, teen retailers.

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The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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