With Panic Apparently Over, the Worst May Be Behind Us

It is extremely difficult, emotionally, to go against the crowd. At the end of last week, in the face of dismal fundamental news, it still looked as though the technical picture was suggesting a rally. Sunday's Bear Stearns (BSC - commentary - Cramer's Take) news set the stage for a possible disaster, and a huge slide was widely heralded by the Asian markets. By the opening on Monday, the fear was palpable, yet the market acted amazingly well. And by yesterday the markets were in a strong rally.

The truth is that in the face of all the bad news, the markets were already oversold, and, in fact, at the end of last week, there were already signs of underlying strength, resulting in the suggestion to buy in the face of the prophets of doom. There are times when it is extremely difficult to go against the crowd, but often they are the best opportunities.

Is the drop over? The panic phase seems to be. I do not see a straight up from here, but I do think the worst is behind us, and that markets are likely to work higher for a number of weeks.

We are approaching the highs of last week, where some resistance may be anticipated. But the Arms Index moving averages are still moderately oversold. If you bought last week, I would be inclined to stay with long positions, and I would be inclined to add to long exposure on any pullback.

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Rally Has More Upside Potential

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Source: MetaStock

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Source: MetaStock

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Comcast: Buy

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Source: MetaStock

Recently, the Nasdaq stocks have been doing far worse than the Dow. But when that discrepancy becomes too large, it usually tells us that both markets are going to rally, and that Nasdaq is likely to overperform. That seems to be the present situation.

Consequently, today I am showing you four more Nasdaq stocks (we looked at a number last week) that look like buys. Comcast (CMCSA - commentary - Cramer's Take), above, had a good move on volume, leaving a gap behind. Since then, it has dropped back in a typical flag formation. I would like to buy it when and if it breaks through the top of that flag.

(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.)

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Intersil: Buy

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Source: MetaStock

Back in January, we had a sign of strength in Intersil's (ISIL - commentary - Cramer's Take) stock. Volume was heavy, it broke the downtrend line, and it gapped. But there was no base to support a lasting advance.

Since then, it has moved sideways, widening the base, and now it is starting to strengthen again. The moving average convergence/divergence (MACD) and moving averages are both positive. Volume is tending to show up on advances. It looks as though it could be bought around current levels.

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Cirrus Logic: Buy

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Source: MetaStock

I like the wide base that has been built in Cirrus Logic (CRUS - commentary - Cramer's Take), as wide bases tend to generate more lasting advances. In addition, the MACD across the top of the chart has just crossed to the plus side, and so have the two volume-adjusted moving averages that overlie the price plot. The rise in the last few days has been on heavier volume, and the prior high has been penetrated. It looks like the time to buy Cirrus.

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Linear Technology: Buy

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Source: MetaStock

This is a good-looking chart. A long decline came to an end with a heavy-volume washout in January. Since then, we have seen volume tend to be heavier on advances and lighter on pullbacks. It spent two months building a base, and now it has moved up out of that base in an impressive manner.

In late February, the MACD went positive, and so did the two moving-average lines. Even with the emotionally-charged recent market action, it has refused to pull back. I see it as a buy around this level.

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At time of publication, Arms had no positions in the stocks mentioned.

Richard Arms is a renowned stock market technician who invented the Arms Index (often referred to as the TRIN), which has become a mainstay of market analysis, appearing in The Wall Street Journal and Barron's. Arms also developed the widely used technical method Equivolume Charting. Since 1996, he has been publishing the Arms Advisory newsletter for money managers and financial institutions. He also has authored Stop and Make Money: How to Profit in the Stock Market Using Volume and Stop Orders, Profits in Volume, Volume Cycles in the Stock Market, Trading Without Fear and The Arms Index, and has been honored with the Market Technicians' Award for Lifetime Contribution to Technical Analysis. Under no circumstances does the information in this commentary represent a recommendation to buy or sell stocks. Richard appreciates your feedback; click here to send him an email.

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