RealMoney Silver - JEC's Sector Has Legs

JEC's Sector Has Legs
By John Hughes and Scott Maragioglio
RealMoney.com Contibutors
5/14/2008 3:42 PM EDT

As technicians, we are naturally drawn to the stocks trending in either direction. We look for sectors that are performing well or are beginning to show signs of improvement. Essentially, we are looking where the money is moving to or where the money is leaving in earnest. This is why we have been focused on the basic materials, energy and related sectors in recent weeks. It's simple -- this is where the money is moving, and these sectors have the least amount of resistance on the upside.

This focus has been supported by the fundamentals of these sectors. We continue to see strong worldwide demand from emerging markets drive these company's profits well beyond even elevated expectations.

Fluor (FLR) was the latest to report strong earnings based on continued growth from infrastructure buildouts. Fluor's earnings growth was driven by strong demand from oil companies, and the company was quoted as saying earnings exceeded their expectations; that's a sign of strong demand. While it may be seen as a sign that things aren't going to get much better, it also shows that demand may continue to be much stronger than expected. This news is good not only for Fluor, but for the sector as a whole, as the infrastructure buildout continues to support most stocks in the group.

With the strong performance of Fluor and the blowout earnings report, the stock has already had a significant rally and seems to have priced in a good portion of this news. However, there are other ways to benefit from Fluor's riches --you can buy other stocks in this sector providing similar services. Our guilty-by-association pick would be Jacobs Engineering (JEC) . This company provides professional technical services to the aerospace, automotive, infrastructure, and oil and gas markets. These services include specialty consulting and all aspects of engineering.

Jacobs Engineering

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From a technical standpoint, we have already pointed out the sector strength that we like to see, and the individual configuration for Jacobs is equally constructive. The stock had a spectacular advance into year-end 2007. As would be expected, it saw an equally volatile pullback In January before spending the majority of the first quarter consolidating both the late-2007 gains and early-2008 losses. All the while, the stock has stayed above long-term support, an indication there were buyers accumulating shares during the weakness.

In mid-April the price action improved as the stock started pushing higher, taking out some short-term resistance along the way. The move above $85 completed a minor basing process and is now supportive of a move back to the old highs in the $100-$105 level.

Good support is found in the $82-$85 zone, and we would place a stop below $82 on long positions.

At the time of publication, John Hughes and Scott Maragioglio had no positions in the stocks mentioned. Hughes and Maragioglio co-founded Epiphany Equity Research, which has developed and utilizes proprietary tools to identify and track liquidity changes in the market indices and sectors. Hughes advises numerous asset managers, hedge funds and institutions managing in excess of $30 billion. Maragioglio is a member of the market technicians association (MTA) as well as The American Association of Professional Technical Analysts (AAPTA) and holds a Chartered Market Technician (CMT) designation. Maragioglio has also served on the board of directors of the AAPTA.

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