Caution: It’s Choppy

April 11, 2002
Tim Truebenbach

The market goes
down, the market goes up. Stocks
break out, and then they get hit. “Choppy” is a great adjective to
describe the current environment. “Cautious” is the best word to use
for how to treat it as a trader or an investor. Pick
your setups carefully (require solid fundamentals and technicals) and watch the
major indices for any further distribution, (which I mention again at the end of
this column).

Tuesdayâ€™s day of distribution was
followed by yesterdayâ€™s solid accumulation in the major indices. As I write
this, the averages gapped lower and have yet to turn positive. Trying to make
predictions on the marketâ€™s direction is difficult now, more than ever. Every
clue we have been given has been met with a contradictory piece of evidence
immediately after.

In the first half-hour of trading on Thursday,
JJSF, ODSY, MOVI and PENN have all violated their pivot points. On average, only
40% of successful breakouts will ever return to their point of resistance. In
todayâ€™s market, 100% of stocks that breakout return to their pivot points, and
thus far, only several have managed to hold a successful breakout for more than
three days.

On a positive note, breakouts are
making excellent initial moves. Volume has been present for the most part,
coming in at least 40%-50% above average, as we would like to see. There have
also been far more breakouts than in recent months. Each day, I have at least a
few stocks to speak of that show potential. These are great signs.

So why are we not raking in huge
rewards? Growth still does not appear ready. Institutions, the drivers of stock
prices, have not yet decided to buy our breakouts, day in day out, to support
them while they have the opportunity to consolidate. Usually, stocks move up in
a stair-step fashion. They advance, consolidate, and then advance again. At this
time, the key element of consolidation is missing.

Christopher
& Banks
(
CHBS |
Quote |
Chart |
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PowerRating) has been one recent breakout making a good
effort at a consolidation following the breakout. After a three-day push higher,
it has traded in a tight range and volume has been lighter. Whether or not the
stock can complete digesting the recent breakout before moving higher remains to
be seen. Thus far, few stocks have done so.

Further signs that I am looking for in
my search for evidence that growth investing is working again are more and more
setups appearing and breakouts occurring. It would be positive if days like
Wednesday became “normal.” I would also like to see pullbacks in the
major averages consistently occur on lighter trade. We do not need to see
occasional distribution in the indices right now. I would also like to see some
of our recent breakouts consolidate and continue higher, while holding on to
their initial gains. (I know that I speak for everyone here!) Only time will
tell, as we are now given some gauges to follow as the market works towards
eventual profits for us.

Just to clear up my error in Tuesdayâ€™s
column: A distribution day is a day where one of
the major indices falls on heavier trade than the previous day. I
apologize for any confusion this may have caused and I appreciate your emails
for this and all your other questions.

Have a great weekend and we all need
to keep close tabs on the averages and setups at this time,

TimT@Tradingmarkets.com

Caution: It’s Choppy

BUY THE FEAR, SELL THE GREED

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