Tuesday, June 29, 2010

Advantage Disadvantage

Any measurement or indicator of the market has its strengths and weaknesses. Example: trendliners look for a break in direction according to simple lines on a chart. Nothing to do with news or products or catalysts. Example: breakout specialists just want a new high, sometimes buying if there is an increase in volume.

Then there are candlestick chartists. I like candlestick analysis because there's no bottom picking involved. It's been proven effective, though not perfect, for centuries as a measure of market sentiment in individual issues. It's not going to tell you how to handle a white-hot steroid-laden ETN like FAZ, but it can give a forecast of possibility, like any other system.

I'm not a purist of any indicator, but candlesticks are effective as any over the long haul for those who maintain discipline and balance. A combination of news awareness, technical analysis and fundamental analysis are good places to start.

Here's a look at candlestick analysis via American Bulls on some of the stocks I'm watching.

AAPL: "Wait"
BIDU: "Sell Confirmed"
C: "Wait"
CLNE: "Wait"
DNDN: "Sell If"
F: "Wait"
FAS: "Wait"
FAZ: "Hold"
FCX: "Hold"
FXE: "Sell If"
FXI: "Sell Confirmed"
GLD: "Buy If"
GS: "Wait"
IMAX: "Wait"
IRE: "Hold"
JMBA: "Wait"
LULU: "Wait"
NBG: "Buy If"
NFLX: "Sell If"
QQQQ: "Wait"
SLV: "Sell Confirmed"
STD: "Sell Confirmed"
TLT: "Hold"
TZA: "Buy Confirmed"
UNG: "Sell Confirmed"
UUP: "Buy Confirmed"
VXX: "Wait"
WPRT: "Wait"

I like keeping an eye on the pennies — NBG and JMBA — for a good idea of market topping. When pennies explode, we're usually at a top. Note that the only "buy confirmed" issues are conservative plays: TZA (Small cap bear 3x) and UUP (US dollar).

LULU isn't a penny, but when shares are topping out, the market is out of steam. Just look at the history of the stock. It's not a frontrunner by any means, and when shares top out, it's a nasty fall.

This is as bearish as I've seen the candlestick analysis in some time. The market is always about growth, not value, over the long haul. Growth has been stagnant since the enormous climb from the short-term March 2009 bottom came to an end. With China's news today, there isn't a bullish catalyst in sight.

Hail to the bears, at least for now.

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