More Evidence of a Significant Low

The Absolute Percentage Change, or APC, indicator (an interesting new indicator which I discuss at some length in my column in this weekend's Barron's) is another piece of evidence suggesting that the recent low is more significant than anything we have seen in a long time, and hints at a better advance ahead than any we have seen since the market top last October.

Two days ago, it looked as though we were entering a short-term-pullback phase, but one that was likely to be too shallow to be capitalized upon successfully by any but the most aggressive traders. That pullback has materialized and has not yet given signs that it is over.

But the Arms Index moving averages have gone more oversold again. I expect to see the advance resume very soon, and would suggest jumping aboard then if you did not do so two weeks ago. A break above the small descending trend line would be a signal that the advance was resuming.

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Title

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Source: MetaStock

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Source: MetaStock

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Fannie Mae: Buy

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Source: MetaStock

I was early when I suggested a buy on Fannie Mae back on Dec. 5. Only now is it finally above the area at which it was recommended.

Now, once again, it is starting to look as though the financials are making a turn. Notice the very big upside volume through the descending trend line, and the gap. The square entries at the end of last week implied it was encountering resistance and was likely to pull back. That pullback can be defined by the small flag I have indicated with the descending line. Placing a buy stop order just above that line would put one in the stock as soon as a reversal begins, if in fact it does.

(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.)

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eBay: Buy

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Source: MetaStock

This is a really impressive advance in eBay (EBAY - commentary - Cramer's Take), but perhaps one that has gone a bit too far too fast. I would like to try to catch a small pullback to go into this stock.

But look at that great bottoming action. Now it has broken out decisively, with an increase in volume. The moving average convergence/divergence (MACD) has gone positive, and so have the two moving-average lines. The width of the base justifies an advance to at least the mid 30s. As usual, the position should be protected with a stop order. In this case, it would have to be quite far down because of the rapid advance, perhaps around 25.

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Ciena: Repeat Buy

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Source: MetaStock

Ciena (CIEN - commentary - Cramer's Take) was suggested as a buy on March 12, based upon the heavy-volume breakout followed by a lighter-volume pullback. Now it has moved higher and has broken two important resistance levels. It looks as though it is still in the early stages of a good advance. If you did not buy it before, it does not look to be too late to do so.

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eSpeed: Short

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Source: MetaStock

Long consolidations are likely to lead to protracted moves. In eSpeed's (ESPD - commentary - Cramer's Take), the consolidation looks like a top. After moving sideways since the start of the year, it has broken support with very heavy volume and a wider trading range. That suggests we are going to have a large downward move in the stock. In the last few days it has rallied, giving us an opportunity to put on the short position at a more attractive level.

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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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