Bull market stocks — those whose businesses benefit from a strong stock and bond market &mdash...
It’s a Stock Picker’s Market…But Which Stocks?
05/25/2010 12:01 am EST
We say this because we can identify five waves down and a tag of some key support levels. The reaction off of these support levels is exactly what we want to see. Powerful and with conviction.
As you can see on the chart above, the 50-day moving average sits at 1100. This is going to serve as a point of initial resistance.
The blue circle encompasses about five days worth of market action, a range of 1070-1090, and a spike down to 1050 thrown in for good measure. In addition to 1100 being the current level of the 50-day average, it also represents a 38.2% Fibonacci retracement level as shown in yellow. Also, take a moment and identify the blue 38.2% Fibonacci level and the yellow 50% Fibonacci level. See how close these two areas are? This confluence of retracement levels is known as a Fibonacci cluster.
We really want to be watching these levels in the coming weeks for resistance and stalling action. If we are now entering into wave two, (upward bias, or the alternate count) then it ought to look like an A-B-C corrective wave when all is said and done.
Looking at the short-term S&P 500 chart shown above, you can see we stopped cold on a downtrend line. So we could chew around there for a few more hours, but we'll tell you this: An upside break of the pink line ought to be powerful, so watch for it. By the way, all the indices out there show this pattern.
Make no mistake, the damage done to stocks over the last month will not repair itself overnight, and a lot of names are going to take months to build new bases. There is also a real good possibility that we will not see the April highs again for a very, very long time. Keep that in mind.
NEXT: Three Promising Stocks to Watch Now|pagebreak|
It’s All About Buying Leading Stocks at Alternative, Low-Risk Entry Points
It's no secret the market has been selling off aggressively all month. The average investor is likely to be very close to the point of liquidation, and at the same time, many stocks have pulled back to areas of solid technical support.
At the same time, we don't just guess or throw money into stuff because the market is oversold.
Instead, we stay in tune with current market conditions, and then objectively decide whether or not it's better to be a buyer of stocks, or a short seller. Then, once we have identified a bullish underlying trend that we want to trade, we scan the market for quality stocks that have pulled back to areas of support. This strict methodology allows us to buy stocks at alternative, low-risk entry points.
You've heard us say time and time again that we don't chase buses. Instead, we wait for stocks to come to us, and we buy them at points where our probability of being successful is high. Here are some leading stocks at alternative, low-risk entry points that we are watching.
Dendreon Corp. (DNDN) is a textbook example of how to buy a leading stock. In this case, you can see that the issue pulled back to multiple areas of technical support. DNDN has also corrected to an area of support that coincides with the green uptrend line and the 50-day moving average. Why chase it and buy it in the $50's when everyone is hyping up the stock when we can exercise a little patience, let it come to us, and buy it in the $40's?
Another example is Valeant Pharmaceuticals Intl. (VRX):
All investors and traders must stay in tune with the action of the general market indices because underlying market action accounts for a substantial portion of the movement in an individual security. Keep in sync with the market by following our updates.
It's really simple; we buy at support and sell at resistance. Another example of a leading stock pulling back to support where we are buyers.
By David Grandey of PortfolioTilt.com
Find more articles like this at PortfolioTilt.com
Related Articles on STOCKS
There are two primary reasons why anchoring your investing decisions to a market’s Fundamental...