This commentary originally appeared at 6 a.m. EST on Real Money Pro - Click here to learn about this dynamic market information service for active traders.
It has been a long, steady uphill climb for nearly two months. But in the last two weeks, especially last week, it looked as though someone was tapping on the brakes. The market drop Friday certainly wasn't a slam on the brakes, and the skid was quickly contained. But it is interesting that a lessening of neither Greece concerns nor of better news on the labor front were able to induce a "pedal-to-the-metal" response. One has to believe that those events were anticipated.
In the meantime, overbought technical indicators (including the Arms Index), light volume, narrow trading ranges and small daily moves all suggest that we may be cresting the hill and looking down into the next valley. I don't expect to drive over a cliff, but we are nearing a steep downgrade. Make sure you have good brakes in the form of stop orders under long positions. Once the downward acceleration becomes apparent, one might take on short positions.
(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.)
We have not looked at Kimberly-Clark Corp. (KMB) since spring of 2010, when it was suggested as a buy. At this time, it looks like a short sale. The strong advance ran into overhead supply in October, so the two attempts to take off again in January were not very impressive in that they lacked volume. Subsequently, KMB dropped on heavy volume and broke the ascending trendline. The rally since then, again on poor volume, makes the stock look as though it is going to go lower. A short here could be protected with a stop above the still-close highs, thereby minimizing the risk.
St. Joe: Buy
This land-development company, St. Joe Co. (JOE), looks as though it is headed higher longer term. Notice the very wide base that began in October. The rallies since then have invariably been on heavier volume while the pullbacks have been on lighter volume. The base has taken the form of a large saucer, which is often an alert to a lasting and large advance. Two weeks ago, it broke out convincingly. Now it has dropped back on much lighter volume. This looks like a good time to buy the stock.