By Dick
Arms
RealMoney.com Contributor
11/12/2008 8:00 AM
EST |
Tuesday's semi-holiday,
lighter-volume trading led to what started out to be a dismal session of lower
prices and general apathy amidst fear. But later in the day, it looked as though
the sellers had run out of strength, and the
Dow regained much of its
loss, before giving much of it back again. But the point is that the drop was
not based upon intense selling, it was based upon a lack of aggressive buyers.
Looking at the first chart below, this seems to have been yet another
light-volume pullback, testing the heavy-volume low of Oct. 10. One or more
tests of a major low, over a period of weeks are very typical of a market
reversal. Therefore, the current action is not only to be expected, but is
encouraging. It broadens the base and continues the series of higher lows.
The second chart emphasizes my contention of the very oversold current
condition. Both the five-day and the 10-day moving averages of the Arms Index
are at rarely seen levels. Such readings usually only come in at, or very close
to, important market bottoms. It looks like a time to be buying, not a time to
be selling.
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.
BP: Buy
BP (BP) is a major integrated oil
company that looks as though it is headed higher. I have inserted a vertical
line on the above chart that separates the decline, with its continuing downside
volume from the turn to the upside and the change in emphasis toward volume
coming in on the upside.
Since it gapped up two weeks ago, it has moved sideways, but has ignored
the weak market. The moving averages and the moving average
convergence/divergence (MACD) are telling us the stock it trying to go higher. I
see the stock as a buy around current levels.
(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.)
ArcherDanielsMidland: Buy
ArcherDanielsMidland (ADM) lost about half its value between May
and October. Now it has turned upward in a convincing manner. After a move
through the descending trend line two weeks ago, last week it gapped upward
again with good volume. That led to a square Equivolume entry, however, so some
pulling back was to be expected. It did, in fact pull back a little in the next
few days.
That pullback now seems to be behind us now, so I think the stock could
be bought around current levels.
Home Depot: Buy
It again looks like a good time to be on the long side of
Home
Depot (HD) . Since the low on Oct. 10, along with just about everybody, it
then built a nice base, and has broken out to the upside.
The pullback of the last seven trading days had produced a typical
lighter-volume downward-sloping flag. A move through the top of that flag would
suggest a resumption of the advance, and be a buy signal. Therefore, a stop-buy
order placed just above the flag and following the pullback lower, would seem
like a good way of being there when and if the advance resumes.
Lowe's: Buy
It is interesting that
Lowe's (LOW) is giving us an almost
identical chart picture as we saw in Home Depot above. It too has favorable MACD
and moving averages. It too had a washout low, and then tested it on lighter
trading. It too has broken out from a base and then pulled back on light volume.
I feel a similar strategy of placing a buy-stop order above the top of the flag
would be a good way of getting into a long position.
