Charting Cramer's Dow Forecast, Pt. 5

So, looking at the daily chart, I had cropped my picture too tightly and couldn't see the backdrop. When I zoomed out to a weekly time frame, I just saw more of the same -- a choppy market ripe for correction.

But when I finally zoomed out to get a sense for where the index was headed, the analysis was pretty easy. The Dow was pushing along the upper Bollinger Band in a strong uptrend. The enduring strength of the market was pretty obvious to the unbiased eye. Yet after saying that I expected the Dow to remain an uptrend through 2007, what did I end with? "However, the Dow is currently right at the upper end of the channel. I think we'll get a better chance to buy during the next month or so."

Now, nobody is perfect, and I prove that every day. But my analysis was upside down. It wasn't consistent with what I do -- and teach. If the trend is up, you need to be long. You don't need to be on margin or 100% invested. But you need to be long.

Uptrends are similar to the interesting, but factually inaccurate, "boiling frog" metaphor, where a gradual increase in water temperature will boil a frog because it doesn't notice the temperature change. They will move ahead without you even noticing because you are too busy waiting for a pullback that never comes. And by the time you figure it out, the market truly is at a turning point, but you're so anxious to buy that you end up doing so right as the advance is ending. You missed the whole move because you were waiting for the perfect entry. Use the big picture for making decisions; use the little one for timing your actions.

It wasn't until two weeks after that article that I finally realized that The Pullback was not likely to happen anytime soon. Why? Because everybody was (and still is) waiting for it. Let prudent position-size management keep you in the game by giving you the confidence to stay involved even when you are having a hard time distinguishing between patience and nervousness. When you are not buying (or selling) all at once, it's easy to stay on the right side of the market, even without that ideal entry. Remember that there is risk to being a habitual spectator -- you risk missing out on a great market.

Now let's get to the last six stocks.

I've highlighted Proctor & Gamble's (PG Quote) extended period of trading in the $63-$64 range as the 50-day moving average slowly climbed to meet the stock price. PG looks like it's in a healthy uptrend, consolidating the gains after the August breakout. RSI, money flow and accumulation-distribution are all bullish. As PG breaks above the $64 level, look for any pullback to be supported by the buying of all of those regretful sellers from the last couple of months.

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AT&T (T Quote) continues to chug along, albeit on increasing volatility. The 50-day moving average continues to define support, but pay attention to the December trading action. The stock failed to make a higher high in late December, but the recent pullback remains above the November low -- so we're still in a "higher highs and higher lows" pattern. Until that changes, don't hang up. Watch this next week closely. If the bulls cannot push the stock to a new high, then all these bearish secondary indicators will be vindicated.

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In October and November, UTX (UTX Quote) formed a double top at $67 before falling below the 50-day moving average and ending the uptrend. After the mid-December gap down to $62, the stock has been churning between $62 and $64. UTX is at a critical juncture here -- the uptrend is obviously busted, but the secondary indicators are all making a comeback. Still, the trend is my buddy, and the 50-day moving average is heading south. So I'm leaning on the bearish side, but I need to see support break down before I'd do anything about it.

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Verizon (VZ Quote) is forming a cup-and-handle pattern. I think the most promising cup-and-handle patterns take a bit longer than two months to form the "cup." Here's why: If the cup forms too quickly, the right side of the cup will be so steep that the ensuing sideways-to-down churning that forms the "handle" will turn into more than a bit of consolidation from healthy profit-taking and might instead simply reverse course altogether. However, we don't need to risk much to find out. Here, I'd buy on a breakout above resistance and keep a stop right back in the middle of the "handle," say, at around $36.50.

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Wal-Mart (WMT Quote) has been moving in a consolidation pattern, grinding along the 50-day moving average. As I see it, WMT is at a critical point. If the stock moves above resistance, it's got a great chance of challenging the October high. Why? Because there just hasn't been that much trading volume above $48, and a lack of prior near-term volume means fewer traders are holding their losing position just waiting to sell.

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Exxon Mobile (XOM Quote) broke the uptrend in mid-December but has fallen almost another 10% since the first of the year. I see all of that volume at the $66-$68 level and believe enough buyers are lurking at that level to soak up a lot of supply if the stock does fall down below $70.

But notice that the secondary indicators (RSI, money flow and accumulation-distribution) are all negative. This by itself doesn't tell us anything we can't already see by the price action. Don't fall into the trap of making things harder than they have to by allowing your attention to be diverted from the price action. After all, the only guy who makes any money off all these indicators is the guy who sells the charting software. To the rest of us, price is the only primary indicator. And XOM is still falling.

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I hope you liked my coverage of the Dow 30. It's been an enjoyable series to do -- but I look forward to checking on the now-sizeable number of reader requests sitting in my chart folder.

Take some time to go through Jim's series of articles on the Dow. Find the ones that you like and then check the charts for an opportunity to act on your analysis. And let me know if you have any questions.

Be careful out there.