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The technical picture for the overall market is very murky. The major indices are stuck in a trading zone; the internal indicators — chiefly Moving
Average Convergence/Divergence (MACD), stochastic, momentum and Relative
Strength Index (RSI) — are somewhat overbought near term, but not excessively overbought long term; the sentiment indicators are neutral; volume
has been weak on rallies and stronger, but not excessively stronger, on down days; and breadth has been irrationally unstable with strong sellers
on some days and strong buyers on others.So we really don’t have much to go on to determine the market’s next move. That’s why it’s vital you choose your investments carefully. To help
you with that task, I’ve put together a list of the exchange-traded funds (ETFs) and stocks I see as the best investments for the month ahead.
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Top Stock #1: DB US Dollar Index Bullish Fund (UUP)
The Options Trader’s Guide to Technical Analysis
Foreign markets have been weak with emerging market indices and ETFs turning negative, while the U.S. dollar has turned bullish long term. There
has also been a significant development in the relationship between gold and the dollar. For several years, they have been in an inverse relationship,
but since late January, they have marched together. This may be an indication that international markets are in trouble (see 3
Emerging Market Bubbles Ready to Burst), and the flight to the stability of the dollar and gold explains this recent change.The DB US Dollar Index Bullish Fund (UUP), which seeks to track the
price and yield performance, before fees and expenses, of the Deutsche Bank Long US Dollar Futures Index, issued a major buy signal as the 50-day
moving average crossed the 200-day. Technicians refer to this as a “gold cross,” and it is a powerful bull market signal for the greenback and this
ETF.The long-term target for UUP is $25.50 to $26.
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Top Stock #2: Market Vectors Gold Miners ETF (GDX)
The Options Trader’s Guide to Technical Analysis
The Market Vectors Gold Miners ETF (GDX), which attempts to replicate
the price and yield performance of the Amex Gold Miners Index, is in a bull market with the major support line at $40.50 and the 200-day moving
average at $41.I’ve recommended several successful trades in this ETF before, and it appears to be in a buying range again after a healthy round of profit-taking.
Note the two buy signals from our proprietary Collins-Bollinger Reversal (CBR) signal.The trading target for GDX is $52, but crises or renewed inflation could result in much higher prices.
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Top Stock #3: PowerShares DB Commodity Double Short ETN (DEE)
The Options Trader’s Guide to Technical Analysis
The PowerShares DB Commodity Double Short ETN (DEE) seeks to replicate,
net of expenses, twice the inverse of the Deutsche Bank Liquid Commodity Total Return Index, which is based on crude oil, heating oil, corn, wheat,
gold and aluminum.This highly volatile trading vehicle just saw a buy signal triggered by the stochastic. Currently trading around $54, the immediate target for DEE
is $59, but it could move up a full 10 points.A word of caution: This is not recommended as a long-term investment. DEE is a very volatile, speculative ETN that is designed for day traders.
If you buy it, be aware of the risk and use a stop-loss
order to protect against big losses.
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Top Stock #4: Sprint Nextel Corp. (S)
The Options Trader’s Guide to Technical Analysis
Sprint Nextel Corp. (S) has been in a bear market since 2006, falling
from over $24 to under $2 in late 2008. This stock is in a sideways trend but accumulation of the shares appears to be picking up, and a long-term
saucer bottom may be forming.Along with the positive accumulation, the stochastic has been issuing buy signals, and another internal indicator, Moving
Average Convergence/Divergence (MACD), is undervalued and issued a buy signal as well.The change in trend could be at a very early stage, so the technical picture is not purely positive, but recent changes in opinion by respected
analysts in the absence of a negative technical picture make this an intriguing speculation. S&P rates the stock a “four-star buy” with a 12-month
target of $5.
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Top Stock #5: ProShares UltraShort FTSE/Xinhua China 25 (FXP)
The Options Trader’s Guide to Technical Analysis
The ProShares UltraShort FTSE/Xinhua China 25 (FXP) seeks daily investment
results, before fees and expenses, which correspond to twice the inverse of the daily performance of the FTSE/Xinhua China 25 Index.FXP appears to be executing a saucer bottom. In late December, the 20-day moving average crossed above the 50-day moving average, known as the “death
cross,” which gave a trading buy signal for this inverse ETF and resulted in a gain of more than 30%.Now the stochastic has issued a buy signal, and buyers of this very speculative inverse fund could benefit from a trade with a target of $11.
However, keep in mind that FXP is constructed to move at twice the inverse rate of the underlying investment, so it carries greater risk than an
ordinary ETF. This pick is “for traders only,” as the SEC has determined that “ultra” funds are not good long-term investments. And be sure to use
a stop-loss order.
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Top Stock #6: Teva Pharmaceutical (TEVA)
The Options Trader’s Guide to Technical Analysis
Teva Pharmaceutical (TEVA) has been in a bull market since 1999.
Its powerful advance makes it an institutional favorite, so whenever it falls to its 50-day moving average, buyers seem to rush to the stock.The recent pullback to the 50-day moving average resulted in the normal buying, but shoved it from a small flag that tells us that the advance will
more than likely continue with a target in the mid-$60s or higher.S&P rates the stock a “five-star strong buy” with a price objective of $70.
Related Articles:
- 5 Ways to Tell a Stock is Headed Up
- How
to Stay One Step Ahead of a Major Reversal - 7 Ways to Tell a Stock is Headed Down
The Options Trader’s Guide to Technical Analysis
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is set to go straight up or down. Get your FREE copy here!
