My Stock Winners

Base Metals/Copper (PCU)
Bullish
Sector trading above its…
20-day Moving Average: NO
50-day Moving Average: NO
100-day Moving Average: NO

Sentiment: There is not yet an exchange-traded fund that allows investors to trade a basket of copper-related stocks, but one’s creation could be just around the corner. The Dow Jones AIG Commodity Index is partially comprised of copper and base-metal names, but also contains energy stocks. Right now, my favorite proxies for the group are individual equities Southern Copper (PCU) and BHP Billiton (BHP). Both stocks have seen their Schaeffer’s Volatility Index (SVI) readings spike in recent weeks to new annual highs, which can often be a bullish sign of future momentum. PCU boasts a short-interest ratio of 7.2, paving the way for a short-covering rally on any positive price action. And BHP has seen its Schaeffer’s put/call open interest ratio (SOIR) rise to 1.73, higher than 84% of the past year’s readings. Together, the 2 stocks have earned just 5 “buy” ratings along with 7 “holds” and a pair of “strong sells.”

Outlook: PCU has been in uptrending mode since mid-2003 and is fresh from a successful retest of its 10-month moving average. Technically speaking, BHP has performed in very similar fashion. The shares have increased nearly 6-fold since mid-2003 and recently pulled lower to test support from their 10-month trendline. The long-term uptrends combine with signs of skepticism to make these names intriguing contrarian opportunities. As for copper futures, the long-term contract is perched above significant support at the $3.00-per-pound level and is threatening to retake control of the $3.25 mark, which defines a 50% correction from the contract’s second-quarter 2006 peak to its first-quarter 2007 bottom.

Technicals
Oil Service (OIH)
Bearish
Sector trading above its…
20-day Moving Average: NO
50-day Moving Average: NO
100-day Moving Average: NO

Sentiment: Sentiment has been moving into more bullish territory in recent weeks, even while the price of oil stagnates beneath former all-time highs. The oil-service group’s composite SOIR has dropped to 0.58, reaching an extreme as it hits its sixth annual percentile. In other words, 94% of all composite SOIR readings on the sector have been higher (or more bearishly aligned). Analysts also continue to support the shares. Of the 208 analysts’ ratings on various oil-service names, 68.3% are of the “buy” or better variety, while just 28.4% are “holds” and 3.4% are “sells.” This makes the oil-service group among the highest-rated market segments, and leaves the related components vulnerable to downgrades.

Outlook: Even while oil-service names earn the accolades of Wall Street and the speculative options crowd, the OIH has spiraled lower. The exchange-traded fund has dropped below its 10-week and 20-week moving averages, the former of which has rolled over into a descending pattern. A bearish crossover in this pair of trendlines could be a harbinger of future downside in the index. One concern from a bearish perspective is the OIH’s 160-day moving average, which contained the group’s pullback last week. Going forward, however, the lack of a concrete “wall of worry” could be harmful for the shares.

Courtesy of Schaeffer’s Monday Morning Outlook