Market Tug of War Could Culminate in Consolidation

Media, tech and telecom stocks are strong, but beyond those groups, the market looks mixed at best.
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There are 474 stocks capitalized at $5 billion or greater in the U.S., and these are the stocks that are most important to the biggest institutional and mutual fund accounts, and therefore the ones driving the overall market.

(Don't get me wrong -- the individual investor is more important than ever to the patterns of individual stocks, particularly in the highflying Internet and telecom sectors. It's just that the institutions, with their billions of dollars of trades each day, are the lead elephants in this parade.)

I perform a daily ritual to see which stocks, and which groups, are performing or not performing. I then determine if the action I am witnessing is going to be meaningful -- or is merely ephemeral.

After taking a fresh look at the charts, here's what I think these behemoths are saying right now:

  • Advertisers, broadcasters and publishers are generally strong.
  • Telephones are generally strong.
  • Technology stocks are uniformly bullish, and the most extended and overbought.
  • Oil-service stocks should be acting much better considering the strength in oil.

But when I look beyond these groups, I find that most everything else is mixed at best. What's more, utility stocks are bearish, and as proxies for the bond market, this tells me that bonds are going to be under pressure. I use the

Philadelphia Utility Index

as my barometer for the sector, and the action there is undeniably bearish. I'm looking for the yield on the 30-year Treasury bond to back up to the October highs of 6.39%. I'm paying close attention to the yield because a close above 6.40% will be a bad sign for stocks.

Furthermore, there are very few bases forming among these groups of stocks to suggest that they and the market are ready to move higher from current levels. Finally, my bellwether and the most important stock in the world,

General Electric

(GE) - Get Report

, is pretty overbought and in need of a consolidation phase. This is another reason to believe the overall market is unprepared to move higher from current levels, and why I think it's likely that the next move for the market is lower.

Here are some other stocks that jump out at me:

Procter & Gamble

(PG) - Get Report

is among the most bullish of the nontechnology stocks. Aside from being at an all-time high, the stock has good relative strength and is supported by an upward sloping 50-day moving average. The breakout above the 105 level in early November suggests 120 is the next upside target.

Columbia/HCA Healthcare

(COL)

is very close to breaking out above resistance from April/May. Several things are working in its favor: Relative strength vs. the

S&P 500

is good, the stock is supported by an upward sloping 50-day moving average, and

Newsweek

recently sported a cover with the headline "HMO Hell." The

Newsweek

cover can just about guarantee that the worst is over for the HMO group, but a breakout won't be secured until Columbia closes above 29.

BellSouth

(BLS)

is behaving pretty sluggishly for a stock whose group is acting so strongly. In fact, I'm guessing there's some fundamental reason -- as yet unexplained -- why BellSouth looks like a cyclical stock and not like other phone stocks. The chart suggests that BellSouth is going to retest its October and March/April lows in the 40 range.

Comverse Technology

(CMVT)

and

Veritas Software

(VRTS) - Get Report

are two of the most bullish, yet tremendously extended, stocks in this grouping. If you own them, there are two things I think you should be doing: patting yourself on the back and then taking some profits. I'm all for buying stocks that are displaying good momentum, and I'm a big believer in not punishing your winners. But I'm also a realist and understand that parabolic moves don't continue forever -- or at least without some pause. First areas of support I see for both are at the 125 level.

Coastal

(CGP)

is topping out, and its relative strength vs. the S&P 500 is bearish. A close under 37 1/2 will say downside risk to 30.

John Roque is the technical analyst at Arnhold & S. Bleichroeder, a New York-based investment brokerage firm specializing in Europe and the U.S., and a frequent guest on CNBC. At time of publication, Roque had no position in any of the securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Roque appreciates your feedback at

jroque@thestreet.com.