Phil's Stock Market Blog

There was a Climax Low buy signal today in the Nasdaq, right off the 50-day XMA (eXponential Moving Average). This will likely be the low of the handle in the "cup and handle" chart pattern.

Here's a chart.

Our stock pick from yesterday went down today - although it will probably go up tomorrow. Just goes to show importance of being in sync with the overall market. Assuming today's signal in the Nasdaq market works out we'd expect most stocks to go up from here, especially ones putting out buy signals today.

Here are a couple nice ones from from the Stocks in Motion table:

ACN is broke out from a classic cup-and-handle pattern today. It's 6% or so off it's all-time high (based on database data).

FDS is pushing up from the low of a shallow base-on-top of a base, following a breakout to an all-time high several weeks earlier. It formed as the market consolidated over the past couple weeks. The Accumulation / Distribution and RS Rank numbers are higher for FDS than for ACN. Also the pattern is tighter, with less intraday volatility. I think I'm talking myself into this one. ;-)>

The Nasdaq gapped down at the open on Friday, just to the 50-day exponential moving average. From there it spent the rest of the day going up, except it sold off a bit on the close. For now we're sticking with the Cup-and-Handle theory. The Nasdaq is currently forming a Handle, as detailed below, and Friday's action was a shakeout. As of the close, the accumulation / distribution reading is exactly 50%.

We ran a screen for All stocks, up >= 0.5, close >= 20, A/D <= 60%, RS rank >= 60, no sort, limit 20 results... and only one stock came up. The symbol is FAZ. It looks pretty good, putting out a so-called Bone Head signal. The fact that it did so on a day like Friday indicate there must be something really unusual going on.

I got to looking at that chart of the nasdaq again.

I'm willing to go out on a limb here and state that the recent decline from the 52-week high, and the rally back up, constitutes a "cup" in a cup and handle pattern. Notice how there were Climax High signals (marked in red) at the beginning and end off the cup.

And now it's forming a "handle", which is a relatively shallow correction compared to the cup, usually somewhat sideways and not showing a lot of distribution.

If all goes well we can expect a breakout from the handle to new highs (above 2200). Hard to guess the timing, it might take a couple of weeks, or maybe longer.

First we had the Climax High sell signals in the nasdaq (marked in red) on the 11th, after a nice little run up from the lows a few weeks earlier. It went down momentarily, but then 2 days later it broke out to the upside, making a new 52-week high marked in bright green) and surpassing the high of the Climax High. Usually we can take this as a contrary buy signal.

But the new high didn't work out either, at least not as a buy signal. Here's a fresh chart of the nasdaq composite to illustrate. This time both the buy and sell signals are wrong. We appear to have entered a choppy, sideways phase.

In perspective, the last reversal downward in the nasdaq (beginning with the Climax High signals on October 20th and 21st) happened just as it had started setting new 52-week highs (shown in bright green) for the first time in quite a while. The old 52-week highs served as a resistance point, deflecting prices downward.

It bottomed out on November 3rd. As noted below, we called the bottom based on a nice pulse in the Number of Climax Lows breadth indicator. We also noticed that the low was lower than for the previous decline, no longer fitting the strict definition of an uptrend (higher highs and higher lows). And, it also undercut the 50-day exponential moving average (shown in blue), which usually serves as a support level.

From there the nasdaq spent the next few weeks working it's way back up, until several days ago when we had another sell signal. Two days later it managed eek out a new 52-week high, but just barely, before moving downward again.

What's it all mean? The sell signal arrested the uptrend, but it didn't really lead to a sell-off. So we're going with the new high as a buy signal, and predict that the uptrend will resume again soon. We say this with confidence, because plenty of stocks are acting very strong. Things are breaking out all over the place. Most importantly, the big leaders are also doing fine, either making new highs, or threatening to, perhaps correcting or going sideways but still with a net accumulation / distribution reading over 50%.

We noted last Thursday's Climax High signal, and that new highs were unlikely, "at least for the moment". This last part appears to be coming true this morning - as the market is breaking to a new high - it's always good to leave yourself some wiggle room when prognosticating the market!

It's characteristic of a bull trend: The Climax Highs can lead to just a temporary bout of selling on the way up, leading to a down day or two, but the things begin their relentless climb upward again. When the high of the signal gets taken out that becomes a contrary buy signal.

Here's a chart of the dow jones industrials to illustrate. Climax High signals are marked in red.

The market staged a nice rally following the pulse of Climax Low signals noted below, obeying my prediction. The indexes ran just up to their previous highs, then yesterday there were Climax High signals in both the Dow-30 and the nasdaq.

From here new highs are unlikely, at least for the moment. The markets will probably decline, the only question is how far.

After tanking for the past couple of weeks indexes reversed off their lows today and managed to close up or around unchanged, albeit on relatively lackluster volume.

Climax Low signals were scarce in my list of 27 major market indexes and ETFs, however the total number of Climax Lows across the database spiked up to 243. This is significant enough to portend a bounce or at least a bounce attempt. A short-term bottom may have formed.

It may be fruitful at this juncture to buy some of the stocks showing Climax Lows and/or Pristine buy signals, although a nimble approach will be required in case things start to slide again. You can use the GigaScanner to find stocks putting out Climax Low and Pristine Buy signals.