Still Too Much Bull in the Market

Last Friday, I suggested that Thursday's intraday action could lead to a tradable bounce within a longer-term downtrend. Well, I was wrong: Friday opened lower and just got uglier. I'm tempted to say that this just makes a bounce more likely, but that makes me sound like I'm claiming to be just early instead of wrong.

However, the Dow Jones Industrial Average has declined for five consecutive weeks. The last time the Dow declined for six consecutive weeks was in the third quarter of 2002. After that sixth week, the index came roaring back with eight straight weeks of advances. Will this occur again? Not a chance.

In 2002, the Dow was well below both the 200-day and 50-day moving averages; it was ripe for an upward reversal. The technical picture now is much different. The Dow is toppy, having just recently dropped below both moving averages. There has been no high-magnitude selloff to clear out the bulls. With so much bullishness still in the market, the best we can hope for is a continuation of the trading range. When the snapback occurs, don't expect too much from it.

Let's get to the charts.

Tekelec

One of the most bullish technical patterns is a cup-and-handle formation. That's what we see now with the Tekelec (TKLC - commentary - Cramer's Take) chart.

This stock peaked in late December 2001 at $20 (the left side of the cup) and went on to form a bottom during late 2002 and early 2003 (the bottom of the cup). It then gradually climbed higher, until finally peaking at $20 in early 2004 (the right side of the cup). Since then, it has gradually declined to form the handle. This pattern will be complete when Tekelec breaks above the right side of the cup at $20.

---

Dan Fitzpatrick is a freelance writer and trading consultant who trades for his own account. His columns focus on quantitative strategies for trading and investing. Fitzpatrick is a member of the Market Technicians Association and manages The Stock Market Mentor, a Web site focusing on the proper use of technical analysis for trading and investing. At time of publication, Fitzpatrick held no position in any stocks mentioned, though positions may change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. While Fitzpatrick cannot provide investment advice or recommendations, he welcomes your feedback and invites you to send your comments to [e-mail].