If you look at the hollow candles, all the critical stocks like Apple (AAPL) had them today. A hollow candle is when a stock or an index gaps down big at the open but has on-balance buyers the rest of the day. The Nasdaq 100 (NDX), the Composite, the S&P 500 and the Dow all had big gap downs with massive hollow candles. In fact, not even hollow -- they all went green, which makes it even more bullish. Apple's hollow because it still finished red for the day, but the action is extraordinarily bullish. What happened late in the day was one of the major firms came out and upgraded the financial and banking sector. Wachovia (WB) went from being down 1 to up 3 1/2, and that took the rest of the market with it.
So very bullish action today, and it's eminently possible we've seen our ultimate low of 1200 on the S&P 500 here in this bear market. I wouldn't bet on that 100% yet, but I think it's a very decent possibility.
The divergences on the daily charts are finally coming into play. I've written about them many times for our subscribers -- about how we had very good weeklies, but I've needed a confirmation from the dailies, and although it's not officially a positive divergence in that we didn't retest the lows, as we started to gap down today the MACDs weren't moving lower -- weren't showing more selling intensity. And I think smart money sees that and they start to accumulate stock. When you see dailies at the bottom of the MACD cycle starting to put in positive divergences, it's really not healthy to be short the market.
On top of that you had the upgrade of the banks late day. The SKF, which is the ProShares UltraShort Financial ETF, went from 148 to 122, showing how intense the buying was in the financials today. So I think the financials are all putting in their bottoms, especially with Wells Fargo (WFC), JP Morgan (JPM), Citigroup (C), Bank of America (BAC) and Wachovia all putting in really strong candlesticks on their earnings.
And that's good for the market.
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Are financials your favorite area right now?
My favorite by far are the transports, and now the financials. Transports are looking good -- why? Because oil is cratering. If you remember I wrote about this the other day, that if the USO oil ETF lost 107, and oil lost 132.40 or its 50 day moving average, that sector would have put in its final top. And sure enough oil went down yesterday. It came back, retested, the USO got a few pennies under 107, and is now trading at 103. The price of oil is now 128 after being 132 almost this morning. I expect oil to fall from 122 over time and possibly a lot lower than that.
So oil is now on the side of the market. I'd avoid all energy stocks -- all commodities, which I was fortunate enough to call the top on about a month ago. I'm not saying there will be strong bounces, but overall I'd stay away. I'd be tip-toeing on any dips back into financials, and especially transports.
What are a couple names you want to talk about?
We just recently owned Federal Express (FDX), and took great profits in it. We'll probably buy it back again at some point. I love UPS. I like the IYT, the ETF of the transports, which we've done well with. We just added Goldman Sachs (GS) today. We think that's going much higher in the financial genre. We like Wells Fargo and JP Morgan on any pullback. Basically I'd focus on those particular areas, but again doesn't mean you can't buy some better tech stocks. We also did very well overseas with the IFN India ETF, which we still hold, although I wouldn't chase it here. We put it out the other day in the 34s, and it's now in the 39s, about a 14% winner for us.
What is it about a chart that makes you want to own one of these names?
IFN had massive positive divergences at the bottom of its MACD in the low 34s, and GS broke through its 1-year downtrend channel, which is very bullish . These are the type of the things you want to look for -- bottom of cycle positive divergence, and long-term trendline breakouts. That's what you want to find, and it's been working out very well.
How do you decide in this volatile market when to get out?
If the MACD starts to roll over from the top when you're very overbought, that can be a time to take some off the table. That doesn't mean it's a negative divergence, but if it gets a little toppy you may want to take some profits. Or if you start seeing negative divergences on a retest of the top after pullbacks.
You're buying more now than we've seen in a while, having been very patient and selective when the market was moving lower. How do you stay patient?
That's the hardest thing to do, especially when you're running a service where you know people want plays. What I try to do is look unemotionally at the charts and ask myself if there is anything out there that is telling me to do something, long or short. If nothing is jumping out at me, I am very happy to do absolutely nothing.
As they say, cash is a position.
It definitely is a position, and you need to understand that it's a position, and that unfortunately is what lot of people don't understand, and that's when people get hurt. I know people want to play, but sometimes when people see the market going down and they're not losing money it makes them feel very good about things. You don't have to lose money in a bad market. And when they see that they're not losing on these really bad days even if we weren't short, because the market's oversold and we don't want to chase oversold, it doesn't really bother us. I'm very happy to sit for a month if I have to until the market tells me the risk-reward is more appropriate. And I'll never change that -- that'll always be the way I play.
Jack Steiman is a former columnist for TheStreet.com who is renowned for calling major shifts in the market. President of New York-based Visionary Research Group, Jack consults to individuals and companies on stock market analysis and education. He honed his skills as a trading educator in front of live seminar audiences in his role as chief financial strategist for InvestEd Central, and also previously hosted two daily programs, "Market Close Live with Jack Steiman" and "InvestEd Central with Jack Steiman," on Business Talk National Radio.
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