By Dick
Arms
RealMoney.com Contributor
10/3/2008 8:00 AM
EDT |
The huge swings
continue. On a percentage basis, the average moves per day, on a 10-day smoothed
basis, are the biggest since the market bottom at the end of 2002. Such big
swings are usually seen at important market bottoms. So the message seems to be
that in spite of all the traumatic news and the predictions of doom, the selling
has been overdone. Remember. The market is a leading indicator, so it should
soon start to discount the other side of the valley.
I have been bothered for the last few weeks that the Arms Index numbers
have refused to give us oversold readings when it seemed as though that was what
we should be seeing. In retrospect, the index has been correct, even when we did
not want to believe it. It has said it was not yet the bottom, even when we
wanted it to be a bottom.
Now, though, the picture has changed. The
NYSE Arms Index is
becoming oversold. Not hugely so, but enough to suggest a rally. Moreover, the
AI for
Nasdaq is really extreme. It is at one of the most oversold
readings we have seen in years. It is saying a good upward move is imminent.
This looks like a time to be going where the crowd is coming from.
To view a larger version of these charts (in some browsers), after
clicking on the "larger image" link below the chart, mouse over the lower-right
area of the chart until the icon with four arrows appears. Then click on that
icon.
New York Times: NYT
The newspaper publishers are starting to look
as though they will move higher. Shown above is the
New York Times' (NYT)
chart. About a month ago, it broke out of a two-month base with impressive
volume. After a pullback, it resumed the advance, but was stopped by the sudden
market weakness.
Even so, the recent light-volume pullback has been well contained. I
would be inclined to wait, and buy when, and if, it resumes the upward move. A
stop-buy order could be used to initiate such a trade.
(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.)
Gannett: Buy
Gannett (GCI) is another newspaper publisher that appears ready to
move higher. Since the first of the year, its price has been cut in half. Now,
though, the downtrend line has been broken. The last three advances have been
with better volume and followed by lighter-volume pullbacks, indicating the
buyers are stronger than the sellers.
The recent market weakness has brought about a pullback in the stock,
which has taken the form of a downward-sloping flag. A move through the upper
limit of that flag will be strong signal to buy.
Lennar: Buy
Reading or hearing the business news, one would have to believe that the
residential construction stocks must be the worst of the worst. But the charts
are telling a different story. Two weeks ago,
Hovnanian (HOV)
was suggested as a buy. Now here is another stock in
the same industry that looks very interesting as a buy.
Lennar (LEN) has broken out impressively from a substantial base.
We have been seeing volume and trading range tend to increase whenever the stock
moves higher, which is a sign of strength. It seems poised to move higher, and
could be bought around these levels I believe.
Ryland: Buy
And here is yet another stock in the residential construction business
that looks like a buy.
Ryland (RYL) moved from a downtrend to an uptrend
in early August, and has worked upward nicely since then. Volume has been coming
in on the advances, which we like to see.
In mid-September, it broke out with increasing volume and a widening of
the trading range. Even with the dismal and erratic market action of recent
days, it has not been hurt. It looks like a buy around current levels.
