Approaching a Breaking Point

The markets are still within a sideways area that has been developing over the last three weeks. In the last two days, the 350-Dow-point limits have been touched in both directions, with the high on Wednesday and then the low on Thursday. But the weakness yesterday was of significance because it also took the Equivolume entry through the ascending trendline.

On the first chart we see that we have had a long advance, and then a resting phase that appears to have now become a significant resistance level.

Take a look at the second chart, below. It is an hourly Equivolume chart of the Dow, and it goes back a month. Notice the propensity recently for volume to come in when the prices are dropping. That suggests an underlying supply of stock, and it is an indication that the move out of the consolidation is likely to be to the downside.

We are still in the consolidation, so the next few sessions are likely to be very important. As I have been saying in recent columns, the odds favor a move downward. I am in no hurry to be a buyer.

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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.

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Dow Metastock

Arms Index Metastock

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Biomarin Pharmaceutical: Buy

Metastock

The last time we looked at this stock was as a short almost a year ago. Now, though, after a long decline, it appears ready to move higher. Biomarin Pharmaceutical (BRMN - commentary - Trade Now) had a huge-volume low in February that looked like a washout of the sellers. What followed was a base-building period that took on the appearance of an inverse head and shoulders. Now it has broken out on better volume and then pulled back a little. It looks as though it could be bought around this vicinity.

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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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