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By Dick
Arms
RealMoney.com Contributor
10/15/2008 8:30 AM
EDT |
After the huge advance
on Monday, Tuesday's hesitation should come as no surprise. After the extreme
bearishness of the prior week, it is surprising it has not given back more.
In my column a week ago, I said that it was about time
to ignore the rampant fear and go in the direction of the fleeing masses. The
rally on Monday seems to justify that viewpoint.
What we have seen has all the earmarks of a traditional selling climax.
We had the heaviest volume in history on the
Nasdaq, and the third
heaviest on the
NYSE. We had immense volatility, and a dizzying plunge,
followed by an equally staggering advance. We had very oversold readings on the
Arms Index, especially on the Nasdaq AI. It was the anticipated "blood in the
streets" that usually ends a bear market.
Does that mean all is rosy now? Hardly. Turning points get tested, often
a number of times. But the current lack of belief, plus the fact that we have
not become overbought on my indicators, suggests the advance will go further,
short-term, and will eventually go higher, longer-term. Do not be in too much of
a hurry to get out with a quick profit.
To view a larger version of these charts (in some browsers), after
clicking on the "larger image" link below the chart, mouse over the lower-right
area of the chart until the icon with four arrows appears. Then click on that
icon.
Bank of America: Buy
The past few weeks, I have suggested that
the banking stocks have been acting better than other segments, and looked as
though they could move higher if the market turned up.
Bank of America
(BAC) came down last week, on both a poor earnings report and a dismal market.
But it came down to just where support was to be expected, because that was the
July support level.
Once there, volume became very heavy, but the trading ranges contracted,
producing square Equivolume entries. Such activity suggests an up move is
likely. Note also that the two volume-adjusted moving-average lines have crossed
to the plus side. The stock looks like a buy here.
(To do my Equivolume charting, as in the charts that appear in this
column, I use a charting program called
MetaStock. To
learn more about this method, read my series of columns,
Trading With Equivolume.)
3COM: Buy
3Com (COMS) has held up very well in the declining market of the
last few months. The March low was tested, but not penetrated in either July or
more recently. In September, it ran up on heavier volume and penetrated the
previous level of resistance. It has to overcome a resistance level just above
its current price. A buy-stop order just above that level would be a good way to
get in when it is moving in a favorable direction.
Provident Bankshares: Buy
Provident Bankshares (PBKS) is a regional banking stock that may
be starting a turnaround. We went through the decline stage earlier in the year,
followed by base building since July, and then a sign of strength at the end of
September.
Since then, in sympathy with the market, it has fallen back on lighter
trading. It has formed a downward flag, which gives us the opportunity to wait
until it strengthens again before moving into it. If it decisively penetrates
the descending trend line with heavier volume, that would look like the time to
be a buyer.
Arkansas Best: Short
Arkansas Best (ABFS) was up when the markets were going down, but
now it looks as though it is about ready to move lower. After building a
sideways area, it broke support last week with increasing volume and a widening
trading range. In the last two days it has attempted to rally, but the volume
has been disappointingly light. The moving average convergence/divergence (MACD)
and the moving averages have both gone into negative territory. It looks as
though it could be shorted around current levels.
