The Advance Is Under Duress

This column was originally published on RealMoney on Dec. 1 at 7:38 a.m. EST. It's being republished as a bonus for TheStreet.com readers. For more information about subscribing to RealMoney, please click here.

Two days ago, in view of the oversold numbers we were seeing in the shorter-term indicators, it looked like we could see a rally develop, but probably a brief one.

The selling of the day before had erased most of the gains of the past month. That and the prior few days had inserted some quite bearish numbers into the Arms Index sequence, bringing about a sudden oversold condition. So the rally on Wednesday and the hesitant follow-through on Thursday were to be expected. But yesterday's tentative action was not particularly encouraging.

As seen on the chart below, the five-day is still quite overbought. But that is likely to change as unusually bearish numbers are offset in the next three days. The 10-day is still quite neutral.

It is still barely in the uptrend that started in July. I believe the critical point will be the next pullback. Should Tuesday's lows be decisively broken, it would give us the first instance of a lower low since the advance began. That would be a very negative sign.

---

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.

Still Quite Overbought But that is likely to change

Click here for larger image.

Source: Metastock

On the other hand, a move above last week's high would say that the rally still had legs. At this point, I'm willing to remain an observer rather than a participant until the conflict is resolved.

---

PerkinElmer: Buy

Click here for larger image.

Source: Metastock

The last time I commented on PerkinElmer (PKI Quote) was as a short candidate back in March. Now, instead, it is looking like an attractive long position.

I like the pattern of ascending lows since July and the recent heavy volume on the upside. It has moved above resistance and then rested on lighter trading, but has not yet pulled back very much. I'd be inclined to try to buy on a pullback to the breakout level, around $20.50. (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.)

---

Corus Bankshares: Buy

Click here for larger image.

Source: Metastock

When a stock that has long traded quietly suddenly gets very heavy volume, it is often time to pay attention. It means something is happening. If, also, a change of direction is evident, it is particularly interesting. We saw such action in Corus Bankshares (CORS Quote) about two weeks ago. It moved up on extremely heavy relative volume, breaking the downtrend and the prior level of resistance. It has since pulled back on much lighter trading. It looks like it could be bought around current levels.

---

Convergys: Sell

Click here for larger image.

Source: Metastock

It looks like time to take profits in Convergys (CVG Quote). I suggested it as a buy on Sept. 1 because of the heavy-volume breakout above resistance. The strong advance now is acting like it's reversing. Four sessions ago, it moved down on heavy volume and an expanding trading range. The MACD, at the top of the display, has crossed to the negative side. The width of the top does not, however, justify going to the short side, at least not yet.

Benchmark Electronics: Short

Click here for larger image.

Source: Metastock

I suggested Benchmark Electronics (BHE Quote) as a sell on Oct. 24. Since then, it has moved lower in a convincing way and appears to have further to go. It again broke a key support level with increasing volume and a widening trading range on Monday. It does not look to be too late, so I'll repeat the suggestion of establishing a short position in this stock.