June 4th, 2010

It’s Never Too Early To Begin Assembling A Watchlist

We’re back on the horns of the creature called “Dilemma“. On the left horn we see the market struggling … and failing … to penetrate back over the 200-dma. As a matter of fact, today’s Daily Report from Don Worden, one of the founders of Worden Bros., developers of the charting software I use and recommend, Telechart Gold, says it all:

“One thing bothered me a lot today. Neither the Dow nor the SP-500 was able to stage a breakout. But they each came within a hair of the necessary close. Or even less than a hair……These microscopic failures seem beyond coincidence. There has to be an element of manipulation there–not necessarily illegal manipulation, but somebody knows when and where to back off. And they obviously know where a breakout point is and what a breakout could do to the technical psychology of traders and investors. It seems feasible to me that they didn’t let it happen. But I have no idea why.

Good to know I’m not alone when it comes to looking under every unusual event through the conspiracy microscope. But here’s what we’re all looking at:

For the second time, the market ricocheted off the bottom of the 200-dma, unable to penetrate above it. Reminds me of last June when it was the mirror image; the market straddled the 200-dma for a whole month until it finally punched through for a 32% run from 870 to the January peak of 1150. Will the market valiantly try to hold at the 200-dma or will it succumb and drop (to 950)? That’s what everyone is trying to figure out.

On the other horn of that “Dilemma” is the confusing picture presented by the charts of so many individual stocks. I just scrolled through three of my scans (“Stocks on the Move”, “Momentum” and “5-year New Highs”) which resulted in a list of about 40 stocks that I had to add to an Alerts watchlist. They all either have or soon will move into new high territory. Either they will break above that resistance level (along with the market moving back above the 200-dma) or will, again, be unsuccessful in their attempt to make a new high.

Regardless, once the market decides that the correction is sufficient and has run its course, there will be too many choices from which to choose. It could feel just like it did last May-July (remember, Stock Picking Feels Like Shooting Fish In A Barrel?) when it was difficult finding a stock you didn’t want to buy. It’s just tough waiting it out for a clear signal. I’ll give you some examples in the next post.

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