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The Charts Revert to Form

After the Fed news, technical patterns return to what had been in place.
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The Street awaited with bated breath the imminent statement and possible action by the Federal Reserve. It happens every time, and yet the final result is generally that the market, after a couple of violent swings, settles back into the technical pattern that had been in place. The news is anticipated and second-guessed, and thereby loses any lasting effect. 

So seemed to be the case again on Wednesday. We, as technicians, had anticipated, because of the oversold market at the end of last week and not because of the Fed, that we would get a rally. We got it. Now, though, the oversold condition is quickly being erased, we look as though we may be dropping from the right shoulder of a head-and-shoulders top, and volume has been predominantly on the sell side.

The Volatility Index (VIX) went right back to its overly complacent levels. The early trading range on Wednesday was miniscule, suggesting that after the advance, the market was encountering lots of overhead supply. Today, the Arms Index on the five-day erases a very large and unusual number from a week ago, so it is likely to become suddenly quite overbought again. This does not look like a time to be buying.

Arms Candlevolume

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Volatility Index (VIX)

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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.)

Lam Research: Buy

Lam Research

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That was a nice breakout on the stock of Lam Research (LRCX) two days ago. It makes the entire period since January look like a base and suggests a substantial further advance. Notice that recently, the up days have been on heavier volume and wider trading ranges, indicating accumulation under way. Because the markets look as though they could pull back, and because the move has carried quite far quite fast in this stock, I am inclined to try to wait for a pullback on lighter volume before buying.

Juniper Networks: Short

Juniper Networks

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Juniper Networks (JNPR) appeared to turn down in late February and has drifted lower since. The very wide top could justify a larger decline than we have seen so far. It has rallied in the last two days, in response to market strength, but on light volume. This looks like an opportunity to short the stock.

At the time of publicaiton, Arms had no positions in stocks mentioned.