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The recent action in both directions has served to accomplish one positive task; the width of the sideways move has been broadened. I had felt that the sharp "V" bottom could not support a more lasting rally, but now we have enough sideways movement so that a breakout to the upside, should it occur, would have enough "cause" for a better "effect."
As everyone is aware, the swings in both directions have been very large recently. Shown below is a calculation that I first showed in a Barron's column a few months ago. It is merely a 10-day moving average of the daily percentage change in the Dow, ignoring whether it is an up or a down day. The scale on the chart is inverted. So, for example, in the last 10 days, the Dow has had an average move of almost 1.4%. That is a big number and, as you can see, it is typical of a market low. It suggests the current rally could go further. We may be poised for a better advance, but first we need the power breakout. 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.
Scotts Miracle Grow: Buy
After a long decline, it has made a very impressive move to the upside. With the heaviest volume in months, it moved above resistance three trading days ago. Now it has pulled back a little and volume has become lower. That looks like a typical pullback after a sign of strength, and suggests the up move is likely to soon resume. I think it could be bought around current levels. Alternatively, a stop-buy order just above current levels would help to get in only if the advance resumes. (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.) AmeriSource Bergen: Buy
AmeriSource Bergen (ABC - commentary - Cramer's Take) is another stock that looks as though it has made a tradable upturn. It gapped upward, and volume and trading range both expanded dramatically. Since then, it has pulled back, forming a typical pennant. This presents the opportunity to put to work some of the methods detailed in my latest book, Stop and Make Money. A buy-stop order could be placed just above the small descending line I have labeled as the buy line. If, instead, the stock drops below the support line, the order can just be withdrawn. If the stock does get bought, then the support line can be used as the level for the first stop-loss order. Later, if the advance continues, that stop can be moved higher, protecting profits. International Paper: Buy
Here is yet another high-volume turnaround that is now in a pullback phase. International Paper (IP - commentary - Cramer's Take) has been in a long decline since late last year, but now it has leapt upward with very heavy trading. One would expect after such a rapid move to see a pullback before going higher, and so far this one does not look like it has gone far enough. But a move through the top of the downtrend flag would say it was resuming the advance. Therefore, I would want to hold back on buying until told by the action of the stock that the pullback phase is over. As with the above examples, a stop-order could be used to get in automatically on a rally. Mine Safety Appliances: Short
Mine Safety Appliances' (MSA - commentary - Cramer's Take) stock has been in a long decline, but still looks as though it could go lower. Since April, it has been trying to find support and build a base. However, that level was decisively broken with heavy volume and a wide trading range last week. Now it is trying to put together a rally, but it looks feeble. A stop-sell order could be placed just below the recent lows.
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. TheStreet.com has a revenue-sharing relationship with Trader's Library under which it receives a portion of the revenue from purchases by customers directed there from TheStreet.com.  
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