Last week it looked as though the rise had gone too far too fast, and was ready for a pullback. That led to the suggestion to have close stops on long positions, and not to initiate new longs.
However, the sudden drop that followed, going into the huge break on Monday, was more violent and larger than we had anticipated, bringing a break of the prior lows. But unlike the penetration of the July lows the week before, it was not on as much volume.
I was bothered by the prior break because a penetration of the prior lows on increasing volume is a sign of weakness. So, contrary to the apocalyptic mood in the press on Monday, even though the break was traumatic, it had the technical characteristics that said it could be an overdone panic, and suggested we could put in a meaningful low at that point.
The Arms Index for the
NYSE that was overbought last week, is now neutral. Moreover, the AI for the
Nasdaq is extremely oversold. The implication is that the rally that got going Tuesday, and that regained a large part of the prior day's losses, is likely to go further. Even with the crosscurrents from Congress and the screams of doom from most pundits, there seems to be room here for a profit on the long side for those with nerves of steel.
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.
Huntington Bancshares: Buy
Even in a scary market, some stocks are acting well.
Huntington Bancshares (HBAN Quote - Cramer on HBAN - Stock Picks), a regional bank, is one, but it still looks as though it is headed higher. The breakout in July was the first alert. After a widening of the base, it again broke out two weeks ago with heavy volume and a wide trading range.
Not surprisingly, it has come back down with the market, but the lack of volume on the pullback is encouraging. This pattern is giving us the opportunity to enter a long position using a stop-buy order. Placing such an order just above the top of the small descending trend of the last week would then trigger a buy, only when and if the stock exhibited renewed strength.
(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.)
St. Joe: Buy
St. Joe (JOE Quote - Cramer on JOE - Stock Picks) is another stock that looks headed higher in spite of the traumatic market action. It broke out from a nice base, then pulled back in the form of a flag.
I have indicated two lines. The upper line is the top of the descending flag pattern. A buy-stop order could be placed just above that line, so that the stop gets bought if strength returns, which appears likely.
The lower line is the danger line. If, after buying the stock, it breaks that level, it is probably no longer a desirable long position, and should be liquidated. Therefore, if the buy goes through, then an ascending stop-loss sell order could be placed just below that line.
Netflix: Buy
Netflix (NFLX Quote - Cramer on NFLX - Stock Picks) refused to go lower, even as the market was falling apart. After a volume breakout, it pulled back on lighter volume, and now looks as though it is starting to strengthen again.
Volume has tended to come in on advances and dry up on pullbacks, which is a good sign. The moving average convergence/divergence (MACD) across the top of the chart has gone positive, and so have the two volume-adjusted moving-average lines that overlie the price plot. It looks as though it could be bought around current levels.
Johnson & Johnson: Short
Johnson & Johnson (JNJ Quote - Cramer on JNJ - Stock Picks) appears to be part way through a decline that is likely to take it back to the bottom of the longer-term uptrend line. It broke support on Monday with increasing volume and a widening of the trading range. MACD is negative and so are the moving average lines. On Tuesday, it moved a bit higher, giving us an opportunity to sell at a better level.
Dick Arms
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