If you think there is little to worry about and that the markets are headed higher, you are not alone. As measured by the Volatility Index (VIX), Wednesday's low of 13.22 was the most complacent level since mid-2007. If you look at the second chart, it will become clear that low fear, as represented on this inverted scale chart by an upward peak, is almost always associated with an important market high point. This is a strong and disturbing warning not to go with the crowd. At major market turns, it is invariably wrong.
The trading in the past five sessions has been tightly contained, producing narrow trading ranges and suggesting that the sudden rise over the new year has run into difficult resistance. So the struggle continues. I believe the potential for a further gain is heavily overshadowed by the risk.
S&P 500
Source: MetaStock
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The Arms Index
Source: MetaStock
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(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.)
Arena Pharmaceuticals: Buy
Arena Pharmaceuticals (ARNA)
Source: MetaStock
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Arena Pharmaceuticals (ARNA) appears to be starting another upward leg, similar to what happened when it tripled between March and July of last year. It has recently had a long period of consolidation and a new upward move with increasing volume and a widening trading range. It penetrated a key resistance level but immediately ran into another, which seems to be temporarily forcing a pullback. This looks like a good time to buy the stock. Keep a stop below the December support.
AT&T: Repeat Buy
AT&T (T)
Source: MetaStock
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The anticipated upward move in AT&T (T) is developing nicely. It was suggested as a buy Nov. 27. The base widened after that and now there's a very credible breakout. I have indicated the power box of last week. Bigger volume, a wide trading range and the gap are all positive signs. The pullback after the move is to be expected and looks like a buying opportunity.
At the time of publication, Arms had no positions in the stocks mentioned.