While those on the East Coast dig out from a long weekend of snow, the rest of us have the opportunity to go about our Sundays as we best see fit.
The action from last week has many folks talking bottom. A huge hammer pattern on the S&P 500 with a 100-handle range definitely provided opportunity, but after a big bounce, what would I consider as charts worth buying, if any?
My focus would be on finding a diverse group trading near their 4- to 6-month highs, rather than coming off their lows. Also, I would want something that triggered a breakout at some point last week. Those stocks are least likely to run into price resistance and should have a clear level of support. Furthermore, the technical picture should be strong in all facets, so for this search I included certain parameters. To indicate strong momentum, I needed to see a rising Relative Strength Index (RSI) trading well over 50. For short-term trend, I search for Commodity Channel Index (CCI) levels on the rise, preferably over 100. For longer-term trend, I identified a MACD crossing over bullishly. For volume, I searched for charts with a Force Index rising and in the green. Also, I looked for stocks trading above their 10- and 50-day simple moving averages (SMA) as well as pushing above their upper Bollinger Bands.
I narrowed the list down to five diverse names, which, ironically, are strong in yield. This list included American Water Works (AWK), Baxalta (BXLT), Nisource (NI), Realty Income (O) and Verizon (VZ).
While there are two utilities in here, they are split between gas and water and the correlation between NI and AWK has been declining steadily over the past six months and sits at 0.74, a moderate correlation. For those who want to argue VZ as a utility, you'll find there is no correlation between VZ and either NI or AWK.
Overall, if I were looking for a basic to buy and I held a slightly conservative tilt, this group of five not only offers strong technical setups, but some decent yield. An equal-weighted allocation is going to average out to about 3% here. In a market still starved for yield, it's not a bad mix. I would expect interest-rate sensitivity to the group, but VZ adds a nice large-cap stability and BXLT brings in the upside of the biotech sector while AWK and NI offer some stability and diversity offered from the utility group.
If you are looking for some ideas of strength and diversity along with yield, this isn't a bad group to think about. If one of the names isn't appealing, then using it as a starting base to work backward within the sector to identify other names in the sector, which may hold more appeal.
And to all my friends on the East Coast, stay safe and warm.