Monday's market drop, right at the opening and persisting throughout the session, actually did not change anything very much; it merely returned the averages to the region they were in at the middle of last week. That region is part of the narrow trading range with an upward bias that has persisted for 13 sessions, and it appears to represent much more difficult movement than had earlier been the case. Monday's narrow trading range, as we see on the first chart below, also tells of difficult movement.
The short-term Arms Index moving averages that we usually look at, the five-day and the 10-day, remain overbought, but as the consolidation continues, they are less dramatic. However -- and this is a particular worry -- the intermediate-term 21-day and the longer-term 55-day, shown today on the second chart, are getting very overbought. That suggests the next pullback is likely to be quite deep and longer lasting. So even though the upward bias to the consolidation is giving us new all-time highs on many days, it looks to be very late in the advance, and this is not a time to be jumping in.
S&P 500
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.)
NL Industries: Buy
NL
Metastock
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A heavy-volume low in late April and a test of that low on much lighter volume in July combine to make NL Industries (NL) look like an interesting buy. Volume is tends to be heavy on advances and light on pullbacks. MACD has gone positive, and so have the two volume-adjusted moving-average lines. It has broken the descending trendline and pulled back a little, and now it is strengthening again. It looks like a buy around current levels.
Barrick Gold: Buy
ABX
Metastock
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Last week, I observed that the price of gold seemed to be stabilizing and that some of the gold stocks appeared to be buys, at least for a trade and perhaps for a longer-term move. Here is another stock in the group, Barrick Gold (ABX), which looks attractive. After coming out of a nice base, it gapped upward, and it has since pulled back a bit. I see this as a good time to be a buyer.
At the time of publication, Arms had no positions in stocks mentioned.