Last night we held a Happy Hour With Traders and discussed market internals and breadth with some of the best Technicians in the business. We focused mainly on the more popular aggregate breadth indicators such as the percentage of new highs and lows, the percentage of stocks above the 200-day, and so on.
We also talked a bit about our process for analyzing breadth on a more granular level, which is simply by looking at our universe of indexes, sectors, industry groups, and individual stocks each week. When we run our scans and look at the individual charts themselves, we continue to see a higher number of new highs and bullish momentum characteristics.
This is evidence of improving breadth.
This week’s Mystery Chart was one of the latest Industry Groups we noticed making fresh all-time highs. In this post, we’ll discuss the chart and offer some trade ideas in some of the groups’ strongest components.
Interestingly, while this week’s chart was quite similar to others we’ve used recently – a base breakout to fresh highs with strong momentum characteristics and well-defined risk – we had a lot more participants wanting to fade it and bet on a failed breakout than we typically do. Just a hunch, but I think it may have something to do with the fact that the market sold off a bit on Tuesday which is when everyone responded.
While one day definitely doesn’t make a trend, it does appear to impact investor biases.
Here’s the chart. This is the SPDR S&P Equal-Weight Telecom ETF $XTL.
Seeing new all-time highs from this Industry ETF makes a lot of sense as almost 90% of its weighting comes from stocks in the Communications and Technology Sectors, both of which are already at new highs.
As long as price is above former resistance around 74, the bias is higher for XTL, and we think prices eventually make their way towards the upper 80’s. If we’re above 77 that’s even better, but 74 is the key level here.
In this environment, we’d expect the leaders of this group to continue to trend higher and outperform their peers. For this reason, as well as the fact that XTL has low volume and liquidity, we want to express our bullish thesis through individual Telecom stocks, and not the ETF itself.
For example, here is one of them. This is Ciena Corp $CIEN, which JC recently put out a trade idea on.
Price just broke out of a monster base it’s been building since the dot-com crash and is currently trading at its highest level in over 18-years. We like this one a lot. As long as it’s above 57, we’re targeting 89 with a 3-6 month timeframe.
Over the long-run, we think Ciena can go much higher, but we’ll address that if and when price achieves our first objective.
Inseego Corp $INSG is another component we like and recently added to our trade ideas list.
We continue to like the same setup we wrote about last week. If we’re above 11.50, we want to be long with a target at former all-time highs around 28. As this would be more than a double from current levels, we want to give this set up at least a year to play out.
Now let’s look at some Telecom names we haven’t covered yet.