Five Reasons to Be Bothered by This Market

A number of things continue to bother me about the market at this time. The first, which we have covered a number of times recently, is the rather weak appearance of the up move since the breakout, over the last three weeks. Second, the volume, while better on advances than on declines, is abnormally low, reflecting a lack of conviction. Third, we have Arms Index numbers that are neutral. This is not bad, but neither is it very encouraging.

Below we see two other factors that are troublesome. The first chart shows the VIX. It is back to the levels it was at in October. That was, if you recall, the market top. So volatility, as measured by the VIX, is saying we may be in a topping area. The last bothersome factor is the Absolute Percent Change that I wrote about recently. It also measures volatility, but may be avoiding some of the problems that have emerged recently in the VIX. It is also at a level where selling has materialized in the past.

We are still in the uptrend, but not very convincingly. I am willing to continue to hold long positions, but with increasing nervousness. Stops should be in there, quite close.

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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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Click here for larger image.

Source: Metastock

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Pitney Bowes: Buy

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Source: Metastock

You might want to put your stamp on this one. Pitney Bowes (PBI - commentary - Cramer's Take) has been in a sideways move since the sharp break in October. That wide a base is likely to generate a good advance. Now it has broken out of the top of the consolidation and entered the region of the decline. There is not likely to be much resistance in that area, so a further advance seems very possible. The moving average convergence/divergence (MACD) had crossed to the plus side, and so have the moving average lines. I would expect a further pullback before going higher. If it does pull back, and volume remains light, it will be a time to buy, I believe.

(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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Administaff: Buy

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Source: Metastock

The chart of Administaff (ASF - commentary - Cramer's Take) is presenting us with an opportunity to put to work one of the techniques suggested in my latest book, Stop and Make Money. The idea is to use a stop-buy order to enter a position.

In this case, the stop would be placed just above the descending trend line at the far right of the chart. As the pullback progresses lower, the stop is lowered, following the price. As soon as the advance resumes and the trend line is broken, the stock is automatically bought. If a reversal fails to materialize, and the picture becomes unattractive, the stock never gets bought.

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Haemonetics: Short

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Source: Metastock

Much like the stock above, but now as a short, we have the chart of Haemonetics (HAE - commentary - Cramer's Take). Since the sign of extreme weakness a week ago, it has moved upward in a typical bear flag. If it drops through the bottom of that flag, it will appear that the decline is resuming. Hence, a stop order to sell if it goes below the flag would put one into the short position just as the presumed decline got going.

It has come out of a wide topping action with big volume and a wide trading range, and is now in the lighter-volume partial retracement stage. This strategy can help to keep us out of trouble.

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Bruker: Short

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Source: Metastock

In the case of Bruker (BRKR - commentary - Cramer's Take), we seem to be a little later in the pattern. After the break on very big volume in mid April, it rallied on light trading, forming a small up-sloping flag.

But in the last few days, it has broken through the bottom of that flag with a bit heavier trading. It seems to be resuming the decline, making it look as though it could be shorted around current levels.

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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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