Technical Analysis
An Overview of a Strange May Market
 By Alan Farley
RealMoney.com Contributor
5/15/2008 1:09 PM EDT
URL: http://www.thestreet.com/p/rmoney/technicalanalysis/10416958.html

Well, it happened again. My trading desk is overflowing with random Post-It notes, half-formed opinions and tasty tidbits that fit much better into single paragraphs than full-blown RealMoney columns. So let me rear back and fire a barrage of tidy sound bites to help you decipher the odd landscape of this unusual May market.

Crude oil: Analysts are now telling us why $150 crude oil is good for the stock market. OK, whatever. In reality, skyrocketing commodities will be a deal-breaker for the five-year recovery if it triggers a deep recession, or worse, in coming months. Besides, Wall Street hates uncertainty, and $6 gasoline is sure to yield a steady wave of unintended consequences.

Latin America: Buy, buy and buy more. This part of the world is turning into the hottest zone on the planet, punctuated by the recent announcement of the biggest oil discovery in three decades by Brazil-based Petrobras Brasileiro (PBR) . Add in the S&P 500 credit upgrade of the Brazilian exchange, and you have the makings of a major bull market.

Wal-Mart Stores
(WMT)
Click here for larger image.
Source: eSignal

Wal-Mart (WMT) : Yes, it's well positioned to take advantage of a slowing economy, but the chart shows major overhead supply just above $60. For that reason, I'd take profits aggressively at that level after the retailer recovers from its post-earnings hangover and resumes the rally it started in the low $40s last September.

Tech: If tech is going to rally into the summer, the uptrend needs to expand from primary names such as Apple (AAPL) and Research In Motion (RIMM) and into secondary players that haven't seen major cash inflows yet. Here are three stocks that might benefit when that happens: BMC Software (BMC) , Western Digital (WDC) and AT&T (T) .

Market volume: You won't convince me this bear market is really over until rally days print two to three times average daily volume on the SPDR Trust (SPY) and Powershares QQQ Trust (QQQQ) . Sadly, we haven't had a single volume-sustained rally day since Feb. 7, which was 25 days before the overhyped Bear Stearns (BSC) reversal.

Rice futures: The worldwide rice rally is more dangerous than the crude oil rally, because it could trigger revolution around the world. Last weekend, I read that Saudis are trying to buy up Thailand rice paddies to ensure a steady supply. You've got to wonder if this type of thing will lead to a resurgence of nationalism and extremism in coming years.

Biotech, the heartbreaker: This speculative sector has promised so much but delivered so little to investors in recent years. These stocks have gone absolutely nowhere since 2005, beyond a handful of overloved leaders, like Gilead Sciences (GILD) . Even longtime momentum favorite Celgene (CELG) has gone dead as a doornail and dropped back to 2006 levels.

Natural Gas Futures
(NG)
Click here for larger image.
Source: eSignal

Natural gas: Many folks don't realize that natural gas isn't trading at an all-time high yet. The futures contract spiked up to $16 in 2005 during a vertical run that collapsed after winter weather forecasts went from wild to mild. The 2008 uptrend seems destined to test that level and tack on another 35% to 40% onto current numbers.

Yahoo! (YHOO) : CEO Jerry Yang wins my coveted Bag of Marbles Award for being the dumbest company exec since what's-her-name at Hewlett-Packard (HPQ) a few years ago. Tell me, why did this 30-something take the company public in the first place if he wasn't willing to accept the responsibilities that go with the territory? What a maroon.

Canadian Solar Inc.
(CSIQ)
Click here for larger image.
Source: eSignal

Prettiest Chart of the Week: Canadian Solar (CSIQ) has risen over 20 points since I highlighted the stock on April 24. The good news is that it might yield a low-risk entry after its high-volume breakout earlier this week. Any decline from here that fills, or almost fills, the big gap should offer an excellent buying opportunity.

Chips: Semiconductors are catching a bid in a big way. In fact, if you watch the market in real time, you'll see that this group trades even better than its mixed technicals. This is a bullish sign that suggests the group's long decline has finally ended. Recent reports of rising component prices also support the possibility of a major cyclical turn.

UAL Corp.
(UAUA)
Click here for larger image.
Source: eSignal

Ugliest Chart of the Week: I don't see how the major airline carriers can avoid a new round of bankruptcies, given the twin devils of skyrocketing fuel prices and a slowing economy. The United Airlines (UAUA) chart supports my paranoia with a death-spiral pattern that has no place to go except much, much lower.

RealMoney: Man, I love this place. Just go back and look through the Columnist Conversation on the morning of the Bear Streams reversal. Where else could you find so many professionals chiming in on the critical events unfolding over the weekend, and early that morning? Of course, I'm biased, but as a trader, I'll say that this site has no competition.

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

Farley is also the author of The Daily Swing Trade, a premium product that outlines his charts and analysis. Farley has also been featured in Barron's, SmartMoney, Tech Week, Active Trader, MoneyCentral, Technical Investor, Bridge Trader and Online Investor. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks.

Farley appreciates your feedback; click here to send him an email. Also, click here to sign up for Farley's premium subscription product, The Daily Swing Trade, brought to you exclusively by TheStreet.com.

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.