Tags: Utilities | Selloff | Google | Chips

Why Utilities Selloff Could End

By    |   Monday, 29 June 2015 08:43 AM

On an Options Action panel moderated by CNBC’s Sara Eisen, chartist Carter Braxton Worth looked at yields of utilities versus 10-year bonds and found that yields have gone from 1.6% to 2.5% while utilities and REITs have dropped 17%.

Looking at a five-year trend, Worth sees utilities due for a counter-trend move up, and he suggests traders “take a shot at the XLU” ETF.

Mike Khouw observed that utilities may benefit from a stronger economy, and he recommended an option spread that would only risk 2%.

In the midst of a lot of commentary about a bubble in tech stocks, Worth sees Google (GOOG) at its long-term trendline and having moved sideways to that trendline. He asks how this intersection will be resolved and predicts there will be a move up.

He would play for a 6% move back to an earlier top at 580. Khouw responded that, “There’s a legitimate debate going on here, because for a long time this was a growth company, and it isn’t really." Google again recommends using a spread to mitigate the risk, but he does not recommend buying the stock.

Looking at the broader tech sector, a chart of Intel (INTC) portrays a head-and-shoulders top with a neckline at 30. If Intel guides down when it reports Q2 earnings, Dan Nathan thinks it can head down toward 26, and he recommends a spread that would limit the risk to 1.5%.

This writer would observe that if the sector is actually toppy, there ought to be quite a few opportunities, but Nathan thinks he has identified a catalyst for a breakdown in Intel.

Last, Rick Berman, of the National Center for Consumer Freedom, makes the case against San Francisco requiring warnings on soda ads, arguing that, “It fails the logic test, and it also fails the legal test.”

The standard that will be adopted is based on the charge that sugary drinks contribute to obesity. Berman’s objection is that putting this requirement on soda would also require that it be put on candy, cookies, cakes, and ice cream, to which a thoughtful reader might say, “So?”

The most telling evidence that there is some logic behind what San Francisco is doing is that Coke (KO) has been moving away from sugary drinks in response to market demand.

Unfortunately the clip ends before the speaker addresses the legal test, but as a recovering lawyer this writer can assure readers that the law evolves, and today’s legal barrier can become tomorrow’s historical artifact, and the advent of social media enables this to happen much faster.

Therefore, as more data become available on the costs of a given activity, the question becomes who should pay, and this is ultimately a political question.

Also, one might object on First Amendment grounds to the state requiring anyone to engage in a specific form of speech, but there is also a long line of cases establishing a duty to warn of the harmful effects of using a given product.

Perhaps the best argument against requiring such a warning is that everyone already knows that sugar is harmful, but people assume the risk.

Those who favor warnings can create commercials like the grisly tobacco warnings, and they can pay for those themselves.



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Robert-Feinberg
On an Options Action panel moderated by CNBC's Sara Eisen, chartist Carter Braxton Worth looked at yields of utilities versus 10-year bonds and found that yields have gone from 1.6% to 2.5% while utilities and REITs have dropped 17%.
Utilities, Selloff, Google, Chips
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2015-43-29
Monday, 29 June 2015 08:43 AM
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