The overbought market we had been warning about last week led to a large slide. It also took the averages, the Dow, S&P 500 and Nasdaq, to just about where support would be expected. Moreover, we had a sudden switch by the end of last week from quite overbought Arms Index moving averages to very oversold, especially in the five-day. So Monday's rally was to be anticipated. The question is, how far will it carry?
Looking at the first chart, below, it looks as though the market has gone from a "black trend" to a "checkerboard" and then a "red trend" on the Arms Candlevolume chart. That suggests we are headed lower. Add to this that the cycles call for a low near the end of this month, and it leads to the belief that this rally is likely to quit soon, and it is therefore a selling opportunity, not a buy signal
Arms Candlevolume
StockCharts.com
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Arms Index
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.)
FuelCell Energy: Short
FCEL
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This stock, FuelCell Energy (FCEL), and the next both are in the fuel-cell technology business, and both look as though they are headed lower. After a fast rise on heavy volume, we have a gap, and then a wide and short Equivolume entry with almost no difference between the open and the close, indicating overhead resistance. Since then, it has gone sideways, but it has penetrated the uptrend line. MACD is just about to go negative. This stock is low-priced and fast moving, so it's not the place for the faint-hearted. But traders could short it here, with a protective stop, of course.
Plug Power: Short
PLUG
StockCharts.com
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Just about everything that was written above about Fuel Cell Energy applies to Plug Power (PLUG). Here, though, the crossover of the MACD has already occurred. Again, this is a stock for aggressive traders who want to assume the risk. There seems to have been a radical change in the stock action in the last two weeks, wherein volume has increased dramatically. That heavy volume has moved the entries laterally enough to break the ascending trendline.
At the time of publication, Arms had no positions in stocks mentioned.