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Argus Technical Analysis – Know Your ETFs!

Argus Technical Analysis – Know Your ETFs!
Argus Technical Analysis – Know Your ETFs!
Joanna Kong
·Yahoo Finance Premium

This excerpt was brought to you using the Research Reports feature available through Yahoo Finance Premium. Click here to start your free trial* and step up your investing.

There is an old and very important saying for ETF investors: know what you're buying. With crude oil (WTI and Brent) up about 13% on Monday, one might expect huge gains in oil stocks. The largest Energy ETF (XLE) was up only 3.4%. On the other hand, oil-sensitive ETF's like XOP and OIH were up 9% and 11%, respectively. Why?

Two stocks, XOM and CVX, make up 44% of XLE and are vastly diversified in energy markets. XOM was up only 1.5% while CVX was up only 2.5% on Monday. These two companies are just not correlated with oil prices. In addition, XLE is 55% oil and gas refining and marketing, a sub industry that does not follow oil prices.

On the other hand, XOP is made up of many small companies and oil and gas exploration is 69% of the ETF. OIH is 76% oil-related services, but is more top-heavy than XOP. Both these ETF's are highly correlated with oil prices.

At the end of August, Technology (XLK) was the most-important weighting for the S&P 500 with a 22% weight. Like XLE, XLK is top heavy -- with MSFT and AAPL making up 36% of the ETF. The top-five XLK stocks make up 51% of the XLK and the top 10 make up 64%.

Wall Street analysts say the oddest things! There was a recent report that small-cap ETF (IWM) would benefit from rotation/strength in Energy and Consumer Staples. Sound right? NO! Energy stocks make up 3.4% and Staples make up 3% of the weighting in the IWM. That means if these two sectors rise 100%, all else being equal, IWM would rise...6%. Know what you're buying!

Applied Materials Inc. (AMAT)

Applied Materials produces semiconductor fabrication equipment, including products used in deposition, etching, ion implantation, metrology, wafer inspection and mask-making. The stock appears attractive based on valuation, as well as on prospects for long-term top-line growth and margin expansion.

AMAT broke out of a bullish cup formation in early July on above-average volume. The stock then worked higher into late July, and has paused since in what could be another bullish cup pattern. Based on the size of the cup, a breakout above $52.42 would complete the formation leading to a potential measured move up toward the high-$50's/low-$60 region. According to Investors.com, AMAT has a very high Group Relative Strength rating (RS) and high Composite, RS, and Accumulation/Distribution ratings.

Chart support and the 50-day sit near $48 and we would put a stop-loss just below that area. We would take profits in the high-$50's/low-$60 region once the above-discussed $52.42 level is addressed.

NVIDIA Corp. (NVDA)

NVIDIA is a visual computing company. It operates through two segments, GPU and Tegra. GPU produces processors for gaming (GeForce), design professional (Quadro), big data and deep learning (Tesla), and cloud-based streaming (GRID). The Tegra segment produces SoCs, DRIVE automotive computers, and SHIELD settop boxes.

NVDA completed a bullish ABC formation with a large gap opening on August 16. The gap higher occurred on huge volume, a bullish sign, and occurred following above-consensus quarterly EPS results. In late August, the shares traced out a bullish flag and, in the process, back-tested the 50- and 200-day averages. NVDA broke higher out of the flag, recently peaking on September 12. It appears the shares are flagging again. According to Investors.com, NVDA has a very high Group Relative Strength rating, and a high Accumulation/Distribution rating.

We would put a stop-loss just below the 50-day average at $167. We would take profits in the $200 region.

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