Tuesday, November 16, 2010

Nov 16: A sharp reversal

Markets contracted sharply in today's trade, with some securities coming into significant support areas. Contrarian bulls are whetting their appetites. But the broad outlook is more uncertain than bullish, as evidenced by, for instance, /ES.

In brief, /ES exhibited an unambiguous break through the price channel support of the post-summer rally. Such a movement portends further value deterioration in the weeks ahead, although not necessarily immediately. Indeed, the index looks oversold at the moment, and challenging 1225 is not out of the question, perhaps in a head-and-shoulders pattern, which is a classic topping formation. Here's the latest chart:

In the realm of individual securities, MRK and BIDU are two of many that standout. The drug maker is plowing quickly into what promises to be significant support; let's keep it on our radar screens as a potentially strong contrarian buy, should price hit the top line of the downward-sloping price channel. As the price channel is sloping in the same direction as price movement, the touch would be a "kiss of death", which has higher probability of repelling the movement.

The Chinese tech firm BIDU, meanwhile, is pulling back from a particularly strong advance in recent weeks. Indeed, while many leading stocks and whole market sectors have been stuck in the mud over the past few years, BIDU continues to advance in seemingly unstoppable fashion. A two-year chart of the security speaks volumes. But, to refer again to the 180-day panorama reproduced below, the current $103.5 support does not seem particularly durable. Additionally, the sharpness of today's 5% markdown -- a definite distribution day, in IBD parlance -- does not bode well for BIDU bulls over the upcoming weeks.

To end on some broad-market summary statistics, here is their representation: S&P500, 1178, down 1.6%. DJIA, 11024, down 1.6%. NASDAQ, 2470, down 1.8%.

No comments:

Post a Comment