Thursday's market advance was very encouraging. The descending trend line that was penetrated minutely on Wednesday, as shown on the chart below, was decisively broken Thursday. In addition, the volume continues to be heavy on the upside.
It appears likely that the Dow will go to at least the old highs of November and December, the upper horizontal line on the chart, and maybe get to the January highs above 11,000.
Even with this strength, the shorter-term Arms Index moving averages have not yet become overbought, which is a good sign. The 10-day moving average is at 1.20 and the five-day is at 1.22. I am inclined to hold long positions here and even add to them.
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.
Another Surge The Dow is set to revisit the highs from late 2005 and maybe earlier this month
On Jan. 18, I suggestedU.S. Steel (X - commentary - Cramer's Take) as a buy. Now AK Steel (AKS - commentary - Cramer's Take) seems to be in the same category. I like the wide base, followed by the power box to the upside made two days ago. Notice that the stock was so strong on the move that it even left a gap behind. That is an additional sign of strength and suggests AK Steel is headed higher. The fact that the stock continues to hold above the old resistance prompts me to want to buy it around current levels. (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.)
After showing strength since the first of the year, the K class shares of Comcast (CMCSK - commentary - Cramer's Take) pulled back. Then Thursday, the stock started to strengthen again. Notice that the MACD has gone to the positive side, and so have the volume-adjusted moving averages. The wide base would seem to justify a substantial advance. It looks like a buy right around here.
Lexmark (LXK - commentary - Cramer's Take) exhibited a strong gap move up beyond recent resistance with heavy volume, showing strength in the stock. It also has had rising lows over the past few months, which is an additional sign that there is interest on the buy side for this stock. Due to the "squareness" of that box, I would look for a light-volume pullback as a possible entry point on the long side.
For two months, DST Systems (DST - commentary - Cramer's Take) was confined to a narrow trading range. Two days ago, it broke decisively through the bottom of the range. That produced what I like to call a power box to the downside. It was a sign of weakness, suggesting further declines. However, Thursday's continuation of the move makes it look a little overdone in the short term. Therefore, although I like it as a short, I would be inclined to hold back a bit, and see if a light-volume rally will allow a short at a more attractive level.
P.S. Will you be there when Cramer makes his next move?
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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. 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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