The Dow at a Standoff
The war continues, but the battle lines have been redrawn. Last week, the charging bears broke through the Dow's defenses at the 12,852 line and rapidly overran the territory leading to the next defenses at 12,700. That line held, and the counterattack has now taken prices back to the old fortifications around 13,000.
This appears to establish the new contested zone between 12,700 and 13,000. But the process has changed the nature of the conflict. Up until mid-February, the bulls were on a steady charge, but now they have run into a difficult zone and have been stalled.
The volume is telling us that another change is occurring. Last week, the heavy volume came in on the downside, and the lighter days were the up days. That suggests that the bulls may be losing control and that the next major shift in battle lines is likely to be downward rather than upward.
Often, the battle lines tend to come closer together, and that seems to have been the case in yesterday's desultory trading in a narrow range. This does not seem to be a time to throw in with the bulls.
Dow Industrials
Metastock
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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.)
Sprint Nextel: Buy
Sprint Nextel
Metastock
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The width of the base suggests that one might be able to get nearly a double in the price of Sprint Nextel (S) in just a few months. That base and the implied advance are shown by the ellipse and arrow on the above chart. Last week it broke out from the base with increasing volume and a widening trading range. That is a very positive sign. I would look for a little pulling back in the next few days, and if it occurs on light volume, I would view it as a buying opportunity. For the longer term, the base is even wider and hints at a longer and more lasting advance.
Sirius Satellite: Sell
Sirius XM
Metastock
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Sirius XM (SIRI) was suggested as a buy on Dec. 22. Now, after a big run-up, it looks like a good time to be taking the nearly 50% profit. I base that upon two things: It has used up the volume in the base, and it has reached the old highs. Note the ellipse that enclosed the base and provided a likely objective. That is not to say I would short the stock here. It does appear to be likely to stop rising, but there is no evidence yet of a top, nor a sign of weakness. Perhaps later those factors will fall into place, but not yet.
At the time of publication, Arms had no positions in stocks mentioned.