This column was originally published on RealMoney on Oct. 27 at 3:30 p.m. EDT. It's being republished as a bonus for TheStreet.com readers.
Everyone knows that this market is marching to the beat of a different drummer. Not a day goes by when a columnist isn't warning investors about the increasing risks. Many have been encouraging investors who are long to take profits and to tread lightly in the extended conditions.
Pros who have been in the market for some time know how quickly things can change, and this time is no exception. Many of us expected a correction before we entered the strongest six months of the year (November to April) and the positive forces of the four-year election cycle. Obviously, that hasn't happened. However, you can still make good money in the market while avoiding the overextended averages and large-caps.
I continue to stay away from the major averages, instead focusing on areas into which institutions are likely to rotate in the future. These are sectors and stocks that are building solid bases and aren't overextended.
I always like to focus on sectors or stocks in which you can make solid gains with low risk. The areas that I've been talking about over the past few months --
homebuilders and biotech -- still look healthy, and many are still in solid bases.
On Oct. 6, I
said that the biotech sector was gaining strength, and many stocks were breaking out of low-level bases. Let's take another look at them today.
I mentioned that the
had broken above the 200-day moving average on solid volume, and that it could easily move up to the $200 level. Since then, it has had a minor consolidation and then continued its ascent. The 50-day moving average has recently crossed up through the 200-day moving average. That's another positive sign that could signal a change in trend for the biotechs.
reported third-quarter earnings that beat estimates and raised forward guidance.
In my previous column, I said that Amgen was the bellwether of the group, and it was leading the group higher. I also stated that any pullback on lower volume would be an opportunity to take a position.
That's exactly what happened as it retraced near support at the 200-day moving average and then continued its move higher. There's not a lot of resistance until the stock reaches the $80-to-$85 area. A protective sell stop under $70 would keep your risk low.
remains in the base it has been building over the past six months. It has held above the 200-day moving average for the past several weeks and looks like it may be preparing to spring higher. A move above the high in July and earlier this month would confirm a breakout. A sell-stop below the 200-day moving average would protect you from a failed move.
also continues to build a solid base after the move off the May lows. It is now consolidating in the upper half of the base and holding above the 50-day moving average. A break above $70 on increasing volume could quickly lead to a move in the $76 area. A good place for a protective stop would be under the $64 area.
I still believe the broader averages need a correction before you can buy with real conviction in those areas. However, you can make solid profits in plenty of sectors without taking excessive risk. I'm sticking with these sectors with tight sell-stops.
At time of publication, Manning was long Amgen, although holdings can change at any time.
Mark Manning, AAMS, is an Accredited Asset Management Specialist and Registered Investment Advisor with Butler, Wick & Co., where he specializes in wealth management. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Manning appreciates your feedback;
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