Published Feb. 05, 2006
Once again, Wedge Resistance
caused the high for the OEX trading month. The pullback and Jan. close in the lower part of the monthly range, resulted in a Hammer looking candlestick, which is often found at market turning points. So a test of Wedge support (560 area) is a likely scenario in February.
An end to this roughly 2 year long consolidation pattern, will be signaled
by a monthly close, either above or below the Wedge, although Rising Wedges usually breaks to the downside.
The trend developing after wedge breakouts, can be sharp in nature.
An Inside Month formed in the VIX Monthly (Volatility) Chart. So a break of the Dec. 2005 high would indicate higher volatility (fear) ahead and in turn... more pressure on the stock market. Overall, VIX is still near decade lows, (1993 to 1996) which will most likely stay intact.
This fact alone, is a good reason to think the upside potential for the stock market is limited, into the Spring - early Summer time window.
The Transport Sector can give clues
about the development in the economy. I.e. more activity in transport companies often reflect more activity and orders for companies in general, which is positive for the stock market and vice versa.
While DJ Transport shows a toppy wave pattern, UPS
has already entered a bearish trend by it's violation of pivot lows. This will be a fact for the Fedex as well, if the
pivot low fails to hold. Stocks making lower highs and then breaking it's recent swing low, could face more weakness.
From an Elliott Wave Principle point of view, a five wave impulse structure from the Oct. 2005 low, ended at the Jan. 2006 high.
The OEX has since then worked on what looks like an a-b-c zig-zag corrective pattern underway, with the a-b part completed.
So odds are good the current wave c will bring prices even lower, confirmed by a break of the Dec. 2005 - Jan. 2006 lows. This strong support comes in at around 570. If it fails to hold, it could open up for more weakness, towards Weekly Trendline support, in the 550 area.
The OEX Daily Chart shows Friday closed right above first Fibonacci support and near trendline support. With Cycle10 in the early stages of a downside pressure phase, this important support may give in to the short term bearish forces. 50% retracement support is at 566.
If the bearish trend from the Jan. high continues into the upcoming 02/16 Gann Angle convergence, this GA has the potential to force a bullish reversal. It marks 270 trading days from the Jan. 2005 low and 360 TD's from the Sept. 2004 high.
The Nasdaq Comp is just a few points from testing the cross point of two important trendlines, which gives strong support. Any weekly close below it, would signal an entry into the large wedge again and possibly more weakness.
On the QQQQ Weekly chart, trendline support is already broken, although not yet a clear close below it.
The TYX is near the Apex of two converging trendlines. The directional breakout from it, could set the tone for weeks thereafter. An upside breakout is likely, given the current Cycle10 upside pressure phase.
The Dollar is still within a bullish price channel.
In retrospect, the extreme Investors Intelligence Advisor Sentiment readings in the end of 2005, again proved to be a technical warning worth listening to, with the OEX deteriorating since then.
BPI (Bullish Percent Index)
Other updated charts:
New High - New Low Index
For the educational purposes of this newsletter, the below company is an example and opinion of a stock with good potential and real substance.
SELECTICA, INC : SLTC ( NasdaqNM )
$85.3 Million Cash
Book Value $2.83
No Debt Load
52 Week Range: $2.55 - 3.72
Outstanding Shares: 32.9M
Average Volume: 77,844
Stock Held By 45 Institutions
Price Target: $4.35 - $5.80+
Selectica, Inc. is into development, marketing, sale, and support of configuration, pricing management, and quoting solutions for electronic commerce. Its software applications enables enterprises to develop and deploy an Internet sales channel that assists their customers, partners, and employees through the processes.
The company's software allows companies to use the Internet platform to deploy a selling application to various points of contact, including personal computers, in-store kiosks, and mobile devices.
Its professional services include product education, presales prototype development, training seminars, product implementation, application development, customization, integration, and education and technical support. Product sales are primarily in the United States, Canada, France, India, Japan, New Zealand, Sweden, and the United Kingdom. The current customer base is made up of many well known Fortune 500 corporations. The company has new products and joint marketing agreements in place and is well positioned for 2006. Selectica was founded in 1996 and the headquarter is in San Jose, California.
The balance sheet for Selectica is quite good, with no debt load, $85 million in cash, a $2.83 book value. In 2000 the stock was trading at $125. It has lost 98% of it's share value since then and is currently trading near a 52 week low, which is a good opportunity to buy shares cheap. This stock has good potential to increase 50-100% over the next 12 months, in my opinion.
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