Still Time to Add to Longs, but Be Cautious

The market low made in late January had all the characteristics of a selling climax. But as we said then, it would have to be confirmed by a successful lighter-volume test. The pullback that followed and that seemed to find support eight trading sessions ago was on lighter trading and therefore had the appearance of the test we were looking for.

Since then, we have had a rally that faltered at the end of last week. But now, Tuesday's resumption of the rally, albeit fleeting, does suggest we are now preparing to work our way higher.

On the chart of the S&P 500 below, we see that Tuesday's rally penetrated the downtrend line slightly. It looks as though this could be a hint of the impending start of a better rally than any we have seen since the markets turned lower in December.

Traders should hold long positions in here and add to them as opportunities present themselves. But do not lose sight of the belief that all this is still within the context of a larger down move that seems destined to eventually take the markets lower. So longer-term investors should remain cautious.

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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.

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Pay Attention to the Longer-Term Downtrend

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Source: MetaStock

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Boeing: Buy

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Source: MetaStock

The last time we looked at Boeing (BA - commentary - Cramer's Take) was on Aug. 29 of last year. We had been long with a profit, but it appeared to be turning over, so we suggested covering the long positions and going short. Now we appear to have very much the opposite situation.

After a long decline, it looks as though it has started to turn back up. Volume has been coming in on the upside, and the descending trend line has been broken. The moving average convergence/divergence (MACD) has crossed to the plus side and so have the two moving average lines. It appears to be an advantageous time to cover shorts and go long.

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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 Stop and Make Money: How to Profit in the Stock Market Using Volume and Stop Orders, 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. 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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