(i take no credit for this writeup below)One ETF that has showed bullish divergence to the broad market recently is the Broadband HOLDR (BDH), which stealthily climbed 3.2% last week. BDH is comprised of a basket of 17 stocks related to the computer and mobile networking industry, although Qualcomm (QCOM) currently represents a weighting of more than 50%. Not only has BDH been showing relative strength, but the daily and weekly charts are both positioned for breakouts. First, take a look at the daily chart of BDH:
The dashed horizontal line on the chart above marks resistance of the prior highs of BDH, just over the $14.50 level. Last Thursday, BDH tested that resistance level, but pulled back slightly when the major indices sold off. Nevertheless, the ETF held up pretty well against the broad market weakness, so the slightest rally in the major indices this week should enable BDH to break out above the horizontal price resistance level shown above. Next, check out its longer-term weekly chart:
Notice that a rally above the resistance level illustrated in the first chart will also correspond to a breakout above the multi-year downtrend line of BDH, which began with the high of April 2006. When charts of various time frames line up with one another, it increases the chance of a rally following through to the upside. This is much better than, for example, if BDH was about to break out on its daily chart, but still would be trading below resistance of a primary downtrend line on the weekly chart. Since it now has convergence of bullish patterns on both time frames, we like BDH for a potential buy entry. Our trigger is simply above the horizontal price resistance shown above, over the $14.70 area. If buying BDH, just remember that it's heavily weighted by just one stock, unlike more diversified ETFs.
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