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Monthlong Decline May Yield to Rally

But that doesn't mean the long-term picture for the market has become bullish.
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Since going extremely overbought at the beginning of March, followed by a crossover of the MACD shortly thereafter, we have had a substantial decline of over a month. Apparently, a very important change occurred at that time in that, based upon the Arms Index numbers, money has tended to leave rather than enter the marketplace ever since. That has produced higher Arms Index moving averages, all the way out to the 21-day moving average. But it has gone on so long that the AI is becoming oversold, suggesting an imminent rally. That is not be misinterpreted as a suggestion the long-term picture has become bullish, but it does suggest that on a short- to intermediate-term basis, we could see enough rallying to be worthwhile for a trade on the buy side for the more aggressive. 

Our stocks in this week's letter, shown below, are in the oil sector. The second chart below shows that oil appears to be starting to move higher again. That looks like an area that could be attractive for participating in the above suggested rally. 

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Exxon Mobil (XOM) -- Buy

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The MACD lines on Exxon Mobil crossed positively in February, indicating an end to the long prior decline in the price of the stock. Since then, however, it has only moved sideways. But a little over a week ago it had much heavier volume as it pushed above prior resistance. So we seem to be seeing a volume advance followed by a lighter volume pullback, and now a resumption of strength. With oil starting to act stronger, this stock could be a good way to participate in the sector. I see it as a buy around current levels. 

Chevron (CVX) -- Buy

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Chevron is another large integrated oil stock that appears to be starting to strengthen. Last week the MACD went positive. It has moved above the prior level of resistance, but still has not broken the downtrend line going back to December. Therefore, I would be inclined to put on only a partial long position at this time, with the intention of adding to it if the current strength carries it convincingly higher.

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