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Health versus CBS trade opened

July 6, 2015

A few weeks ago, I showed that CBS had topped against health and staples stocks and that these defensive stocks were poised to break higher against CBS. Today I open a trade in one of these pairs.

SPDR Health (XLV) versus CBS

XLV V CBS WEEKLY BOLL

  • Having underperformed CBS for years, the long term moving average turned up in summer 2014
  • Since November 2014, the pair has consolidated those gains and the 40 week Bollinger Bands have contracted
  • The pair has now broken above the upper band and the band width has expanded

Daily chart

XLV V CBS WEEKLY BOLL DAILY

  • The trade is opened at a value of 1.3606 as of 8pm UK time today
  • The stop loss is at 1.19, below the late May/ early June lows
  • The position is opened in my model portfolio

The stop loss is quite wide, as it the way on these breakout trades
Today I reviewed some Bollinger Band breakouts that I noted over the last year. I saw that they don’t always take off in a straight line and that it can be difficult to judge when they won’t work.

One thing going for this trade (or asset allocation for long only managers) is that the wider market appears vulnerable from a breadth perspective, as shown on 15 June. A falling market should help this trade.

 

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