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The Curse of the Parabolic Move

By Jeff Clark
Thursday, May 30, 2013

 Oh sure... it's all fun and games when prices are going straight up.
 
But as the old saying goes... What goes up must come down. And the straighter up it goes, the faster it drops...
 
 Take the utility sector, for example...
 
We first warned about the dangers of the parabolic move in utility stocks a few weeks ago. You can see what has happened to the sector since then...
 
Utility Stocks Have Crashed Over the Last Few Weeks
 
So with this chart in mind – and with a profitable utility short sale under our belt – it's worthwhile to look for other parabolic moves in danger of breaking down. Here's what we found...
 
 Japan's stock market has been ripping higher since December – when the Bank of Japan announced its own version of quantitative easing. The Japan iShares Fund (NYSE: EWJ) rallied 33% in five months before giving up some of those gains last week.
 
Over the long term, this bull market could power higher. But in the short term, if the parabolic breakdown plays out as it has in the utility sector, any brief bounce this week could be followed by even lower prices later on. EWJ has support at about $10.50 – which looks like a good downside target...
 
Japanese Stocks (EWJ) Have Further to Fall
 
 What started out as a steady grind higher for Microsoft (NASDAQ: MSFT)shares this year has morphed into a parabolic blast-off. The stock is up 23% in just the past five weeks.
 
The chart does look like it can push higher at least one more time. But the move is getting very stretched. A reversal from slightly higher levels could knock the stock back down to support near $31. If you have a long-term position in the stock, that shouldn't affect you one way or the other. But short-term traders can consider taking some money off the table...
 
Microsoft's (MSFT) Upward Move is Getting Stretched
 
 With the stock up 200% in two months, there's no question shares of Tesla Motors (NASDAQ: TSLA) have gone parabolic. Shorting this stock is tough to do, though, since 44% of the float is already sold short – and painfully underwater. When this electric-car bubble finally pops, it should be one heck of an explosion...
 
Tesla Motors (TSLA) Has Gone Parabolic
 
– Jeff Clark




Further Reading:

If you're looking for a quick tutorial on how to read charts, check out Brian Hunt's "Common Sense Guide to Technical Analysis." You can find our five-part series here:
 

In The Daily Crux
Market Notes
Insurance uptrend continues as MetLife and Prudential touch fresh multiyear highs.
 
Brazilian iron ore giant Vale plunges to a four-year low.
 
Brokerage firms are quietly surging… Schwab, TD Ameritrade, and E*Trade are all sitting at 52-week highs.
 
Facebook looks poised for another "leg down"… shares break down to a six-month low. 
Market Watch
Symbol Price
Change
52-Wk
S&P 500 1656.86 -0.1% +25.1%
Oil (USO) 33.71 +0.3% -3.8%
Gold (GLD) 134.20 -0.3% -10.2%
Silver (SLV) 21.92 +0.7% -16.9%
U.S. Dollar 83.54 -0.3% +2.6%
Euro 1.29 +0.1% +1.4%
Volatility (^VIX) 13.16 +2.7% -40.9%
Gold Stocks (^HUI) 260.19 +1.3% -30.9%
10-Year Yield 1.88 -3.1% +6.8%

World ETFs
Symbol Price
Change
52-Wk
Japan (EWJ) 11.95 -1.2% +36.4%
USA (SPY) 165.95 -0.1% +27.7%
India (IFN) 22.00 +0.5% +27.2%
Singapore (EWS) 14.49 -0.7% +25.8%
Israel (ISL) 14.83 +2.4% +20.0%
Taiwan (EWT) 14.12 +0.5% +18.8%
China (FXI) 37.68 -0.2% +14.1%
Canada (EWC) 28.10 +0.6% +12.6%
S. Africa (EZA) 65.29 +0.3% +8.0%
Lat.America (ILF) 42.84 +0.1% +8.0%
S. Korea (EWY) 58.26 +1.2% +10.7%
Russia (TRF) 14.45 -1.7% +4.0%

Sector ETFs
Symbol Price
Change
52-Wk
Construction (PKB) 20.80 -0.5% +55.7%
Media (PBS) 21.19 -0.2% +48.6%
Health Care (IYH) 102.64 -1.0% +36.0%
Biotech (PBE) 29.36 -1.7% +34.6%
Financials (IYF) 73.29 -0.1% +38.7%
Consumer Svcs (IYC) 105.03 -0.4% +34.9%
Telecom (IYZ) 27.31 -0.3% +33.4%
Defense (PPA) 24.44 +0.1% +33.3%
Water (PHO) 23.17 -0.1% +30.4%
Industrials (IYJ) 85.27 -0.1% +29.7%
Transportation (IYT) 116.36 +0.0% +29.1%
Retail (PMR) 30.64 -0.3% +26.2%
Real Estate (IYR) 74.95 -0.1% +25.2%
Alt. Energy (PBW) 5.29 +0.6% +22.5%
Insurance (PIC) 19.01 +0.1% +18.3%
Big Tech (QQQQ) 73.84 +0.2% +18.9%
Utilities (XLU) 40.09 -0.5% +16.9%
Software (PSJ) 30.64 +0.3% +17.9%
Basic Mat (IYM) 72.36 +0.4% +16.9%
Nanotech (PXN) 6.79 -0.3% +13.5%
Semis (PSI) 15.97 +0.5% +10.1%

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