A new bull market in Japan may be emerging — here’s how you can trade it
The last bit of summer begins
this week as Labor Day approaches. It is the season of weakness. Action is
typically bearish at this time of year. Sentiment ought to come in from its
current level of optimism. Short-term condition of the market is oversold.
Yesterday’s bounce came in light trade. It was a nothing day. A day of just
moving along. My shorts held up. Made the lousy month more palatable. The
scorecard reflects the performance on a month-to-month basis. Performance is
measured every month. Self-examination is always necessary. I don’t really worry
much about opinions. Opinions are usually always wrong. I am more concerned
about what the market is telling me. The market speaks through the movement of
the tape. It is a language picked up by being involved regularly. I am an active
trader. I have a skill set that has been honed over the last 10 years. The last
5 years have been especially rewarding. I learned more in the last 5 years then
in the previous 50. I am glad to share with you what I know. I write mainly to
help me in my own trading. This is nothing more then a snap shot of what goes on
inside the head of a person that trades stocks actively. I have a few names I
will get into in a minute. First, my two cents about the current market.
The current market reflects a split tape. Oversold conditions were resolved in
yesterday’s reversal. The reversal came in light trade. Today Japan is up solid
to the tune of 1.16%. Japan’s stock market is attracting the flow of money. It’s
been down so long and bargains are perceived. Perhaps it is about time they
shrugged off the doldrums. Japan has been down in the dumps for over 16 years.
Perhaps now is the time when a new bull market gets set to emerge. It is a
possibility. Japan has the potential to rise up to 14k. I am involved in the
(
EWJ |
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PowerRating).
It is the way I choose to play Japan. Right now I am involved and will get more
involved coming in to the 10.50 zone or rising above 11.25 on a close. Markets
are up across the globe and Japan is leading. The overall global laggard has
suddenly assumed a leadership role. How long will it last? The tape always tells
the tale and the tape says a while. Our market is in the throws of a correction
that took away most of the gains made in July. New highs have diminished. The
last hour of trading has been tired and trending south. It is an anemic market
with moderate to light trade. Futures are down. That is the way they looked
yesterday morning at this time only worse. Today both sides of the coin ought to
be played. The secret of profiting in bull and bear markets lies in the ability
to discern stocks that are declining and advancing. Stocks that are at the
outset of a decline are good to short. Stocks that are beginning an advance
after breaking above the top of its base following a decline are good to keep
long for a while. The following stocks display price patterns indicating
favorable odds long and short.
Teradyne
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TER |
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PowerRating) 16.62
TER is on the verge of breaking
to new near term highs. A close above 16.65 and a new buy signal emerges. It is
close so it is worth watching. I am involved and am prepared to buy more shares
after it crosses 16.65. That is a fact. That is my current intention. The reason
is quite simple. The stock will then be in a position to extend its current
advance. The current advance is young. TER has had a recent decline conclude and
has been building a decent base ever since. It is emerging into a new advance
right now. The crossing at 16.65 confirms the reality of an advance. The best
time to get long a stock is at the outset of an advance. This stock is a timely
long. I am glad I took it on and will be ready to add to it today provided it
ends the day above 16.65.
Wyeth
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WYE |
Quote |
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PowerRating) 46.08
It’s a good hedge. Pure and
simple. Stocks like BMY and PFE ought to be carried short. Be open short BMY and
PFE and long WYE. That is a good balance to get some juice out of the big drug
stocks. The big drug stocks are lousy losers right now. Led by MERCK. Lousy
losers. The bright shiny red apple in the drug cart is WYE. The advance persists
crossing 46.55 on a close. That establishes a new high and places the stock
firmly inside the strong grip of the bulls. Positive money flow is the reason
that WYE has a favorable trading pattern. It is trying to cross the top and
likely will. The odds are currently favorable. It is a hedge to offset the
possible bounce by the current oversold instruments in the group. WYE is up over
8% this year. It’s up 27% in the last year. It is one of the best performers in
a lousy group. A break above 46.55 improves the odds for higher prices down the
road.
Goldcorp
(
GG |
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PowerRating) 17.65
This is an interesting stock to
be in right now. I like the action that this commodity is expressing right now.
I chose this particular stock because its action suites me. Metal stocks are in
decent shape right now and GG is one of the better performers right now. It is
slightly extended so now is not the time to go after it. A toe in the water
allows you to at least watch it. I would grab it on a pullback to the 16-16.50
zones. Having some of that in the blend is appropriate. GG bottomed in May of
this year and has been rising since. It is extended so tiptoe with a small toe
in the water and watch it.
Textron
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TXT |
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PowerRating) 71.12
This stock is rolling over. It
is headed south. It is at the beginning of a decline after forming a major top.
Great performer during the initial advance back in March 2003. It rose from 27
to 80. Nice advance wouldn’t you say? I couldn’t care less about TXT. I have no
feelings about it. It just looks like a good short. Taking action in declining
charts is one of several ways to grow your stake. The only reason to get
involved in the stock market is to build and grow your wealth. It is clear that
both sides of the market long and short, light and dark serve that capacity. TXT
is a possible short in here. The stock is just beginning its decline. I invite you to look at the chart and gaze at a
roll over.
Yahoo
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YHOO |
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PowerRating) 33.68
This is a good short up to its
200 day moving average. YHOO currently trades below all key inflection points.
The odds favor a steeper decline. I would sell more YHOO short in a rally up to
35 a share. The stock trades like a dead skunk lying by the side of the road.
The vultures are picking at it and it is falling apart. Short more below 30. The
decline could be serious and swift. If the stock turns and rises above key
inflection points breaking through resistance up in the 36 zones then cover and
move on.
Trimble Navigation
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TRMB |
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PowerRating) 33.87
The stock is oversold and will
bounce today providing a good chance to sell it short and inevitably profit.
That is how I see it. A good place to short the stock is 35. That is my
intention. It will open up around 34.50 this morning. A rise during the day near
35 and subsequent failure to rise above that point is the sell signal. The stock
has begun its decent and it is likely that the long advance is over. The risk is
low. The stops are tight. Use the 200 and 50-day line to stop the loss.
Jack S. Rothstein
Jack Rothstein is the
President of Rothstein Investment Advisory Services, Inc. and is a 20-year
veteran stock trader and a money manager.
Mr. Rothstein also writes Wealthcast, a monthly newsletter about the technical
behavior of the markets. He has been quoted on Bloomberg, CNNFn, the Dick Davis
Digest and the Dow Jones Newswire. Since 1993, Mr. Rothstein also hosted
WealthCast, a radio show in the Washington DC area covering the stock market.