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Good stocks to be monitoring

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I could build both a bullish and bearish scenario from the markets at this point. There are some great looking charts of stocks to be looking long with some very distinct action points to the bullish side as well as some charts that look like the stocks could get flushed should the markets respond negatively to the upcoming Fed interest rate policy meeting.

If you're a trader that is only looking at the market and have decided on a direction that it will trade in the coming sessions, I wish you luck and hope that things work out. You have a 50/50 chance. Those traders that want to have some stocks ready to trade REGARDLESS of the market direction are well served to be identifying stocks that should outperform in the direction of the market response. One reason traders are having such a tough time calling the market right now is that there are some chart patterns that look like they could jump higher and some that look like they could get smacked to the downside. It all depends on the MARKET response to the Fed announcement.

Here are some stocks I feel could explode to the upside should the market respond favorable. I'm not just looking for software stocks, but I have to admit there are some very interesting and bullish price objectives associated with stocks that have a software theme. All I'm doing is looking at some charts of stocks where it seems that a shift in supply/demand could take place that could bring a big move in the stock depending on the markets response to the upcoming Fed announcement.

Rational Software (RATL) - $1 and $0.50 box

A trader that has been looking at some charts can perhaps see how shares of RATL might be a bullish candidate to have on his/her list of stocks to trade should we get a favorable response to the Fed interest rate decision. Today, shares of RATL traded the needed $28 level to now set up the potential for the stock to break its bearish resistance trend and give a triple top buy signal at $29.

Citrix Systems Chart - $1 and $0.50 box.

The broader markets haven't been very bullish the last couple of weeks, but shares of CTXS continue to inch higher. Should the markets turn positive after the Fed rate announcement that should help a stock like CTXS.

Intel Corporation - $1 box

Shares of INTC have found bidders for the stock at $27 and the stock has "refused" to trade $26 in the past month. The bullish vertical count indicates $43. A trade at $26 would be bearish. Here's a great stock for traders to have on their bullish and bearish trade list with some very obvious levels to be monitoring. Bearish at $26 and bullish at $33. Right now the stock is simply range bound, but a break is eminent. All you have to do is wait for the break. This might also be a good stock for a trader to implement a straddle on by buying both the $30 strike put and call option. You can just see the pressure building in this stock as the battle between supply and demand wages on.

IBM Point and Figure Chart

As goes big blue, so could go the Dow. Since May 1st (the red 5), IBM has been trading between 118 and 112. 118 has become stiff resistance that has been tested 6 times, but cannot be broken. On the other hand, Dow stocks have been taking a beating over the past couple of days, but IBM continues to hold above 110. Is this the result of portfolio managers buying IBM to get it on their books before they report to investors at the end of the quarter, a lack of short interest, or just the markets way saying we are not going to sell the Dow? Either way, the fate of the markets rests solely on IBM's shoulders. That statement might be, okay is, overdone, but if IBM loses 112, I would expect the Dow to lose 10,400. A break above 118 could mean goods things for the Dow, and if IBM continues to meander in its trading range, so could the Dow.

Not that the four stocks above are any indication of the broader market, but perhaps you can see both the bullish and bearish action points and how these stocks, like others can all contribute to a big market advance or decline with tomorrows Fed announcement. One thing I do find interesting though is this. If I'm looking for current bullish or bearish vertical counts in the above charts, all four of them currently have bullish counts associated with their charts. Is this a hint of market direction after the Fed announcement? I'm starting to think so!

I'll back that last statement up with the FACT that bonds are seeing a lot of selling today as YIELDS rocket sharply higher. The market is selling bonds and this frees up cash. All a trader has to do is sit and observe market reaction to the Fed on Tuesday. It could end up being very easy pickings for the bulls.

Jeff Bailey
Senior Market Technician

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