Thursday's steep advance was certainly impressive, but it was more impressive in the statistics than it was on the chart. On the first chart below, we see that it took us up, but only as a rally within a downtrend. It could carry further, perhaps to the 12,800 area, but that would still be within the small downtrend that started just about a month ago. Moreover, all of this looks like a part of the much broader slide that began last October.
I am also bothered by the fact that the rallies are not gathering volume. Thursday's move, were it to have been with very heavy volume, would be much more convincing. As it is, it lacks credibility. I am hearing a great deal of bullish commentary on the tube, but the traders do not seem to be confirming that bullishness with their money.
The second chart shows the five-day and the 10-day moving averages of the Arms Index. Both of these indicators have moved away from their oversold levels and are now neutral. They allow room for more of a rally, but are likely -- noting the numbers that will be offset in the next few days -- to go to an overbought condition quite soon. I continue to believe that the rallies are selling opportunities not buying opportunities.
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.
Cabela's: Repeat Buy
Cabela's (CAB Quote - Cramer on CAB - Stock Picks) continues to show up as an attractive long position. It was
first suggested as a buy on Feb. 15, based on the upside volume and the break of the descending trend line.
The suggestion
was repeated on March 26 after it had again shown strength and then pulled back. Now we have seen a repeat of the same action.
In May, it went through prior resistance with heavy volume, a wide trading range and a gap. The current pullback on light trading looks like another opportunity to buy, anticipating an eventual breakout off a wide base.
(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.)
EMC: Repeat Buy
EMC (EMC Quote - Cramer on EMC - Stock Picks) looks like a very attractive buy at this time. It has fulfilled the technical moves we look for. It was
first suggested as a buy on April 25, based upon a breakout from a base. Now the base has been extended as it has worked higher.
In mid-March it broke out again, very decisively, with heavy volume and a wide trading range. Now it has pulled back and held. I would expect the next move to be on the upside, and would be inclined to buy on dips.
Linear Technology: Sell
Continuing the thought
from two days ago, that some of the technology stocks suggested in March as buys may have gone about as far as they are going to, here is another candidate.
Linear Technology (LLTC Quote - Cramer on LLTC - Stock Picks) has gone up about 50% since the April 25 commentary.
Technically speaking, the uptrend appears to have turned sideways , and the moving average convergence/divergence (MACD) and the two moving-average lines have crossed to the minus side. I would take the profits at this time, and watch to see if the bottom of the recent consolidation is broken on volume, at which time I would consider it for a short position.
Analog Devices: Sell and Short
Analog Devices (ADI Quote - Cramer on ADI - Stock Picks), which was
suggested as a buy on March 26, is another technology stock that appears to have turned lower.
After a sharp break two weeks ago, on very heavy volume, it has moved back up to the old highs on lighter trading. This has produced a typical upward flag, which is often seen as a hesitation within a decline.
In my most recent book,
Stop and Make Money, I look at such flags as trading opportunities, since a move out of the flag often produces good follow through.
In this case, I would be inclined to have a stop-sell order just below the bottom of the flag, and tracking the move upward. Any decline will then cover the long position and initiate a new short position.
Dick Arms
RSS
