This column was originally published on RealMoney on Feb. 2 at 11:00 a.m. EST. It's being republished as a bonus for TheStreet.com readers. For more information about subscribing to RealMoney, please click here.
Well, January sure made a lot of very serious bears look pretty silly. During the first month of 2007, the
advanced 1.53%, the
Dow Jones Industrial Average
advanced 1.18% and the Nasdaq 100 outpaced both, running 1.87% higher. Turns out that Wall of Worry had a lot of handholds. But now what?
I was looking at my
Stock Trader's Almanac
and noticed that February generally tends to be a bit more mundane than January. Specifically, February is "the worst of the best."
The best six months of the year tend to be November through April, leading into the "sell in May and go away" period. While January tends to be strong, February is just "ho hum," maintaining the existing trend but certainly not blowing the doors off the market. If January gains were substantial, February typically will pull back a bit. Since 1950, when the S&P 500 has gained at least 2% in January, February will correct 69% of the time.
While statistics do have meaning, they aren't magic. Markets make strong advances in response to strong buying pressure, and that pressure is finite. As more and more of that finite capital becomes committed to stocks, that buying pressure becomes potential selling pressure. That's what makes February a welcome haven for the bears.
What's your plan for February? Are you going to switch sides and sell your stocks with a growl, or are you going to remain friends with the trend? It's your call. I'm just keeping my stops snug so I can sleep well at night. I'll let the smart guys pick the top.
Let's look at some reader requests:
The Hartford Financial Services Group
Yahoo! has been gradually moving higher since October. The stock is now challenging $30, a level that proved to be solid resistance back in August and September. Until the bulls can push the stock back above that level, I'd stay on the sidelines.
UAL had been trending higher along a nice steady upslope. But the stock broke below that line last month and now is struggling with the 50-day moving average.
Wednesday's intraday low almost tagged $40. That's where I'd mark the power of the bears. If the stock fell below that level, I'd sell. And I'd probably short the stock on any move back to test the trend line at $50 or so.
The Hartford broke out of a volatility squeeze earlier this week. But the accompanying volume was just tepid -- not bad, but not great. The trend is certainly higher, but I'd keep a stop back below the breakout level. If the stock falls back into congestion, there's no reason to be long.
St. Joe is close to breaking to the highest level it's seen since early 2006. But the stock continues to struggle at $58. I'd be a buyer only when the bulls show enough power to push through that level. Until then, I'd be on the sidelines.
ABX Air is pretty thinly traded, but is close to breaking above $7. With the stock in an uptrend since mid-2006, the bulls have a good chance of breaking to a new high. Based on this low volume, it would take the shorts almost seven trading days to completely cover their positions. Because of that, I'd bet a move above $7 will flush out some shorts. That's when I'd buy.
Be careful out there.
Please note that due to factors including low market capitalization and/or insufficient public float, we consider ABX Air to be a small-cap stock. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.
At the time of publication, Fitzpatrick had no positions in any of the stocks mentioned in this column, though positions may change at any time.
Dan Fitzpatrick is the publisher of StockMarketMentor.com, an advisory newsletter and educational forum dedicated to teaching effective risk management and trading methodologies to aspiring traders and investors. He is a former hedge fund manager and a member of the Market Technicians Association, and he now trades from his home in San Diego, Calif. While Fitzpatrick holds various securities licenses, he does not give recommendations to buy or sell stocks. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. He appreciates your feedback;
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