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Life After Ags


Which road less traveled is the next hot sector?

Where did that come from? I'm talking about that whiff of spunk that swept through the market a couple of hours ago. Was the move off the lows in the same genus as the oversold bounce and jellyfish?

In other words, is this the real deal: Does this move have a backbone? Breadth is grudgingly changing but declining issues continue to dwarf advancers. I do sense an attempt at rotation as hot niches of the market continue to gyrate. Agricultural stocks are one that has begun to struggle a little. Even an increase in the share price target of Potash (POT) hasn't stopped it from getting hit today. It's the same across the board with CF Industries (CF), Monsanto (MON) and Agrium (AGU) all giving back a few points. That in of itself isn't a big deal, especially with high beta stocks, but something else is developing that raises yellow flags.

The agriculture ideas are failing at key resistance points on individual charts and the agribusiness ETF (MOO) is spinning its wheels and pulling back from a double top. The fundamentals on this group remain great but, from an investing point of view, maybe it's become one of those trades that everyone knows, which makes it a lot less attractive than when everyone though "moo" was only the sound cows make.

I've felt for a few weeks now that smart money has been searching high and low for another sector or niche(s) to get in, something off the beaten path. Let's face it: At this point, even with their great fundamentals story and potential the agriculture stocks are no longer the road less traveled.

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I like the way the semis are acting but I've said that a couple of times over the last few weeks and invariably they slump the next day. Still, there is something about the tape action that's very appealing. I think the group is under accumulation.

The Semiconductor Index is a perfect example of a rally followed by a 50% retracement. If the index holds here and turns up a move through 400 would be a significant buy signal and our work suggests such a move would lift the index to 460 then 500.

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Meanwhile, the financials are up again today on renewed hopes.

I know, the rumor mill with this sector is like the life cycle of a fruit fly (be born, fly around with boundless energy and then die, all in 24 hours, only to do it all over again) of mergers. It makes a lot of sense that deals could be in the works. By now everyone has heard HSBC (HBC) is supposedly looking at UBS (UBS) but other viable candidates include SunTrust (STI), Wachovia (WB), and Wells Fargo (WFC).

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No positions in stocks mentioned.
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