It continues to be a very complacent market. We have noted that problem recently in the low VIX readings. Shown below is a much longer-term look at volatility, posted on an inverted scale. This chart is merely the average daily percentage change in the Dow Industrials, posted on a monthly basis. Note how closely peaks and troughs in the blue volatility line match the highs and lows in the market.
In other words, we have the lowest volatility on market highs, as the public gets lulled into a state of extreme complacency. At this time, we are seeing the lowest readings we have seen in the 20-plus years on this chart. In February, the average daily change in the Dow has been .26%. That has to be a warning.
The last few days, since the run-up early last week, have been very indecisive. In the meantime, the Arms Index moving averages, which were overbought at the time of my last comment on Friday, have gone even further in that direction. It is an overbought market on a short- and intermediate-term basis.
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.
Alkermes: Buy
About a month ago, on Jan. 17, Alkermes (ALKS - commentary - Cramer's Take) was suggested as a buy, based upon a turn to the upside with volume and a penetration of the downtrend. After a resting phase, it has now resumed the advance. Again, we saw both volume and trading range increase as it went higher. It also produced a breakaway gap to the upside. The substantial base and continued strength lead me to reiterate the buy suggestion 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.)
Teva Pharmaceutical: Buy
Let's take a look at Teva Pharmaceutical (TEVA - commentary - Cramer's Take). I like to see a wide base prior to a sign of strength. That indicates a substantial accumulation of the stock and suggests that the subsequent move will go quite far. In the case of Teva, it was under accumulation since last June, prior to the sign of strength last week. It then gapped up through the top of the accumulation range with heavy volume and a widening trading range. That looks like a breakaway gap and suggests that a big move upward could occur. A small light-volume pullback here would not be surprising and would be a chance to buy at a better level.
The Knot: Short
The uptrend in Knot Inc. (KNOT - commentary - Cramer's Take) appeared to come to an end last week. It moved downward on extremely heavy trading, leaving a small gap behind and breaking the ascending trendline going back over a year. After the break, it traded in a narrow trading range with heavy volume the next day, indicating a support level and suggesting a rally before going lower. It has rallied a bit but looks as though it could do more in that direction. I like the stock as a short but would try to wait for that rally before putting on the position.
Intel: Short
On Feb. 7, I warned that Microsoft (MSFT - commentary - Cramer's Take), a bellwether for technology stocks, was turning weak and becoming a concern for tech in general. Intel (INTC - commentary - Cramer's Take) is another stock that often leads the group, and it is not giving a very encouraging picture. It came down on volume in January and has since moved back up on lighter trading. However, the trend now appears to be down. I see the stock as a short sale around current levels.
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