Technical Analysis
  • Today, a look at the Dow, Nasdaq, Hovnanian, Brigham Exploration, DeVry and Juniper.
  • It's not too late to buy Hovnanian.
  • Juniper is likely to fall to $15 and looks like a short.
Technical Analysis
Danger Signs in the Advance
 By Dick Arms
RealMoney.com Contributor
2/2/2007 7:46 AM EST
URL: http://www.thestreet.com/p/rmoney/technicalanalysis/10336444.html

The Dow's Wednesday strength took it within a hair's breadth of making a new closing high. Then Thursday it staged a follow-through rally and did stay in new-high territory, closing near its high for the day. This of course leads to great media headlines, but I'm not sure the move is particularly significant.

If we stand back and look at the markets from a longer-term standpoint, we see the picture I have shown on the charts below. The lower panel is the Dow Industrials. Yes, new highs, but not very exciting in view of the obvious loss of momentum since November.

On the upper panel we see the Nasdaq. It's acting even less convincing. It hasn't gone to new highs, and the broadening consolidation is even more apparent. A broadening consolidation after an advance is a historically significant sign of a top.

In the meantime, the VIX has moved back to a very low level, reflecting extreme complacency. The Arms Index moving averages remain somewhat overbought also. Yes, this is still an advancing market, but one with a lot of danger signs.

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.

Unconvincing
The Nasdaq's broadening consolidation and Dow's loss of momentum are noteworthy
Click here for larger image.
Source: Metastock

Hovnanian: Buy

Click here for larger image.
Source: Metastock

The homebuilder stocks continue to act well. On Jan. 4, I suggested Hovnanian (HOV) as a buy. Since then it has strengthened, and volume has come in on the up moves.

The stock is coming off a small base, as indicated, but that all seems to be a part of a much larger base and upturn pattern that suggests we could have a lasting and strong advance. I don't believe it's too late to buy this one. (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.)

Brigham Exploration: Buy

Click here for larger image.
Source: Metastock

Brigham Exploration (BEXP) is another energy exploration stock that acts as though it's ready to go higher. It came down to its support level from last September and held well there.

In the last few days it has moved higher with increasing volume and has penetrated the high of two weeks ago. The two volume-adjusted moving averages have crossed to the plus side. It looks as though it could be bought around current levels.

DeVry: Short

Click here for larger image.
Source: Metastock

DeVry (DV) put in a good advance from October to the end of the year. Now, though, it looks as though it has rolled over to a declining mode. We have started to see heavier volume on the downside in the last week. The two moving averages have crossed to the negative side, and the ascending trendline has been broken. A return to the old resistance, the horizontal black line I have inserted, seems possible.

Juniper: Short

Click here for larger image.
Source: Metastock

Flags are smaller consolidations during a stock move that go contrary to the larger trend and quite often indicate the halfway point in the larger move. For example, the flag on the way up was half the total advance. In Juniper (JNPR) , we have now had a flag on the way down. That suggests that the decline, signaled by the break through support with heavy volume, could carry to about the $15 level. The stock looks like a short.

Please note that due to factors including low market capitalization and/or insufficient public float, we consider Brigham Exploration to be a small-cap stock. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.

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 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. At the time of publication, he had no positions in stocks mentioned in this report, although holdings can change at any time. 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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