March 6th, 2010

Your Watchlist – Part 4: Stocks with Good Charts

On November 9, in “One View of Market’s Future”, I accurately predicted the market would stall at 1150 and laid out the following game plan:

  • The market begins to stall out in December as:
    • the door for the sidelines-money slams shut for the year
    • tax selling begins to capture losses and record gains in anticipation of possible higher 2010 tax income rates
  • The 1150-1200 is a critical area for past pivot points where the market turned in 1998, 2001, 2002, 2004, 2005, 2006 and 2008. These pivots occurred both when the market was trending up and down.
  • The turn is usually caused by an economic catalyst and one that could fit the bill perfectly would be:
    • The $US Dollar firming and possibly reversing its descent.
    • The “Soft Dollar Trade” (buying foreign currencies, gold and commodities), considered by many as “over-crowded”, begins to unwind and the market begins to decline.
  • A logical target for the bottom of this correction is the neckline of the market’s inverted head-and-shoulders bottom, or approximately 950 in the S&P 500, a 17% decline from the high.
    • The decline falls within the definition of a correction falling short of the 20% required to considered a “Bear Market”.
    • The Index will find support on the 200-DMA, the crossing of which is a key indicator identifying Bull and Bear Markets
    • The 200-DMA will have crossed the 300-DMA by then
    • The 300-DMA will have turned up, the final hurdle before the book on the Crash can be finally closed.

Now, four months later, that forecast appears to have been unbelievably accurate, if I do say so myself. The market peaked in early January at 1150 and the dollar has appreciated 7.18% against a basket of other currencies (.DXY).

One element, however, has failed to materialize – the shape and depth of the correction. Rather than the long awaiting 10-20% correction similar to the one in 2004 that many were expecting, there’s been a lateral, horizontal correction; does that qualify as a correction at all? Fortunately, I also outlined an incremental strategy for handling the correction when it came (see “Market Dominoes Beginning to Fall” of January 26) and, so far, the market’s resilience and knocking over only the first few the dominoes has prevented us from moving very far into cash.

Applying that same incremental approach to a market perhaps about to cross above 1150 and resume a bullish run (remember, our expectation that the next leg up would begin in Sept-Oct rather than now; see “Mid-term Elections in 2010 and the Stock Market” of January 28), we began assembling ideas for a watchlist. The final group consists of 109 stocks that have clear consolidation patterns out of well-formed bottom reversal patterns. After breaking above necklines or other resistance trendlines, many appear on the verge of breaking out of long consolidation patterns (channels, wedges, etc.) that carried the stocks back down to test the trendlines.

Many are asset managers, insurance, credit management and, surprisingly, REITs. The following are merely offered as typical examples. For a complete list, click here (click on image to enlarge):

  • AB (Alliance Bernstein)
  • LRY (Liberty Property Trust)
  • WRI (Weingarten Realty)
  • CBG (CB Richard Ellis)
  • BXP (Boston Properties)
  • BKD (Brookdale Senior Living)
  • CNA (CNA Financial)

I must confess, this is my favorite among the four groups because there are so many excellent charts to pick from, many paying unusually high dividends and some already having begun climbing to new heights.

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  • Jesse

    feeling bullish joe? seems all to perfect to me. don't break out the champagne yet. Just wanted to show you something interesting. 1044 – 1112 = 68 pts for (a), 1112 – 1086 = 26 pts (b) and 1086 to 1154? = 68 pts (c). A perfect abc wave, b being a perfect 38.2% Fibonacci number…symmetry. Every time I try and swear off the EW, I see this mathematical rhythm in the markets.
    maybe we make a new high and just as the corks pop off and the streets are filled with euphoria, we hit that sweet spot at 1154 and things get ugly. who knows. If I did, I'd be a rich man….