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Indexes and some of our list.

December 18, 2006

I hope everyone had a good weekend. I’ll be going to an Advanced Technical Analysis workshop in near D.C. this week, so postings will probably be on the less frequent side. However, I’ve put together a pretty lengthy post here which should give you plenty to chew on for a while.

Don’t forget to check for the key economic events for the week ahead. You can find key events, earnings announcements and splits for the coming week in the “Week Ahead” page found in the left column on the “Strategies” page on the the Investools site. Otherwise, for a simple view of economic events, click here. There you can click on each event for a link to more info.

Taking a quick look at the major indexes, the SPX looks quite strong, continuing its trend with higher highs and higher lows. One potential bit of caution is Friday’s shooting star which would be validated as a potential reversal point or resistance level with a gap and close down or big black candle for monday. This would be consistent with the current channel resistance.

(Click images to see them larger)

The VIX index has been very volatile since breaking the downward resistance line. Now it’s back to lows and has used it as support on friday. Until this index makes a meaningful move above the 13 area, I won’t get too excited about prolonged bearish action in the market.

I don’t usually pay too close attention to the Dow or place a lot of weight on it as an indicator of market direction. Regardless, it is interesting to note that while it did break horizontal resistance to a new high this week, the old trend channel support may now act as potential resistance. There is also a shooting star of sorts, though not quite the ideal with its upper shadow less than twice the length of the body.

As for the Nasdaq, though not in the most convincing way, it did close above the recent lower high and the pennant formation. It doesn’t seem to have great momentum at this point, but the bias remains up.

The Market Forecasters shows the intermediate lines on both charts moving up in the upper reversal area, so these are read as bullish. Regardless with the market trends still clearly in tact, this stochastic indicator is not yet quite ideal for these conditions.

From our list:

AAPL is in a good position for a low risk entry ( i.e. near support). However, “Apple Computer Inc. said Friday it has delayed filing its annual report with the Securities and Exchange Commission due to its ongoing investigation into stock option grants.” So it wouldn’t surprise me if investors were a bit lukewarm on the stock following this news.

BHI has broken decisively above the 75 resistance area. All those who bought in under that level have been validated and are now sitting pretty. Getting in now near the 75 area would be ideal on a test of support in coming days. The P/E of 11.3 shows a discount to the Group’s P/E of 22.4. With growth expected at 23%, that gives us a PEG of about .5. Seemingly too good to be true. From what I can tell, there seems little reason this stock shouldn’t revisit its high and likely go further. Very good also to see the group moving quickly up the Big Chart in the past few weeks.

Our other oil stock, UNT hasn’t quite broken the longer term downtrend convincingly, so it’s still in the dog house with me. There is also a bearish divergence between the higher high in price and the lower high on the MACD.

CRDN looks to have support at 55 and some potential resistance 56.30 or so, but nothing blatant until the high around 62.50.

COH appears to be easing its momentum a bit in keeping with its group rank on the big chart. However, it is still in a nice, healthy uptrend after breaking two significant resitance levels with volume. As it move into its uptrending support line and the 30 MA, this might be a very good place to look for a bounce entry to ride a run up in anticipation of its earnings announcement on Jan. 22. This could be a good time to look at buying options too as the Implied Volatility is at a low point and it will likely start to rise approaching the earnings announcement. This will inflate the premium in the options.

ISE somehow doesn’t quite look like it’s going to break through this ceiling. It’s strangely back below the high from back in March and the big volume jump to a new high with volume on 10/25 after earnings didn’t quite set off a new move. 55 remains as resistance. All that said, the uptrend is still in tact and we have just made a successful bounce off the support line. Good entry point using Friday’s open as a support line and the trend line as an exit signal. Makes for a risk reward of 1/5. VERY GOOD. Also, a Jan 45/50 bull put spread for roughly $1.55 credit could be very successful using the same lines as an exit.

KBH will be a difficult one to play, I think. The homebuilders do
seem to have put in a bottom for the time being and have pulled above that area with an accompanying rise up the big chart. However, Friday’s Big Chart rank did show a slight pullback as there is considerable overhead supply with lots of potential resistence every step of the way. KBH may see the nice round number 50 as support now, but there seems resistance at about every $5 incriment as we go up. That’s not necessarily a bad thing as long as we can get in near support levels and get out at each target. For now, I’ll leave this alone and expect a more sideways bias.

NTAP broke back above 40 on Friday with considerable volume(see 11/21 for a “fake out”). Perhaps it will now hold as support. We’ve now got three fresh green arrows with recent volume spikes being buying days.

It will be interesting to see what happens with RIMM after its earnings announcement on Thursday. It’s in a strong uptrend about to receive a third green arrow on the MACD.
This article makes for a case of overvaluation which seems quite believable seeing as the P/E is twice that of its group and it has a PEG of around 3. (Here’s a good link for an explanation of P/E and PEG.) Perhaps we can watch this for a bearish play if it breaks the uptrend support.

Okay then. I think that’s enough for now. I would love to see some comments on all this, if nothing else, just to let me know people are in fact reading, thinking about and questioning this all and not just glancing at it.
Have a great monday! šŸ™‚

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