Stock futures are edging higher this morning with S&P futures up 2 points at 1,117. NASDAQ futures are higher by 1 point at 1,599 and Dow futures are up 20 points at 9,753.
Fair value for the S&P 500 today is $1.85. HL Camp and Company has their computers set for program buying at $2.98 and set for selling at $0.28.
Take profits or raise stops!
For the last couple of weeks, I've been telling traders and investors to raise their stops in bullish trades to help assure profitability or sell strength on stocks that were looking overextended or had reached a bullish price objective from its point and figure chart.
Here's a stock that has turned from bullish to rather bearish in the last couple of weeks. Yesterday's action should have a bull looking to take profits, or if purchased recently, hedging the position with a protective put or in the money call.
Are you perhaps holding a stock in your portfolio that has achieved its bullish price objective and giving sell signals or bearish patterns in its chart?
Broadcom Chart - $1 and $0.50 box
In yesterday's "market monitor" on OptionInvestor.com and IndexSkybox.com, we alerted traders that Broadcom (NASDAQ:BRCM) traded at $43, which triggered a bearish triangle pattern in the point/figure chart. The chart had given a sell signal back in late November (just prior to red C), but lingering bullishness in the market most likely had the stock rallying back higher, but NOT creating a buy signal. The stock has now had time to consolidate and looks to be breaking down. The sell signal created in late November indicates the stock may be vulnerable to the $31 level.
Since the stock is a component of the NASDAQ-100 and the NASDAQ- 100 bullish percent in now in "bear confirmed" status from an "overbought" level, we view the shares as bearish and an attractive short/put candidate.
Professor Earl Davis' study from Purdue University concluded that the "bearish triangle" pattern in a "bear market" was profitable 87.5% of the time, for an average gain of 33.3% in a 2.5 month time span on average. Based on this statistic, a trader may be targeting the $28.81 level, which would be a 33.3% decline from the $43 level.
With the current vertical count indicating bearishness to $31 and the statistical probabilities indicating $28.81, the odds look to be in favor of a bearish trade.
NASDAQ-100 Bullish % Chart - 2% scale
With Broadcom (NASDAQ:BRCM) triggering the "bearish triangle" pattern and the NASDAQ-100 Bullish % ($BPNDX) now in a "bear confirmed" status, we would expect near-term weakness and some bearish trading opportunities in technology stocks that reside in this market. When these larger technology stocks show weakness, it has a distinct tendency to spill over to other portions of the market.
Traders that been with us for awhile will understand how the NASDAQ-100 bullish percent indicator "acted" back in May (red 5) and June (red 6) and will know to expect volatility in many of the stocks that make up the NASDAQ-100 and broader technology.
For the past couple of weeks, we've been talking about this indicator and that is was telling us that bullish traders were now carrying the bulk of the risk. With 70-some percent of the stocks on "buy signals", how much more bullish compared to bearish could things get? When you look back to late September's reading of 2%, how much more bearish could things get? Who had the risk at 2% bullish? The bears did that's who!
Interesting note. In May (red 5), when the NASDAQ-100 bullish % reversed into "bear alert" status, shares of Broadcom (NASDAQ:BRCM) were trading near $45. In June (red 6) BRCM was trading near $35. In July (red 8) BRCM was trading back near $45. Hopefully this gives you a good idea of how volatile this stock is and the short-term trading opportunities that are at hand.
If you can print out both charts and lay them side by side, I think you will be impressed at how the bullish percent can help you get a feel for market risk based on sharp declines in the bullish percent data. You can also get your own free charts by visiting www.stockcharts.com.
For the listing of the 100 stocks that make up the NASDAQ-100, please visit http://dynamic.nasdaq.com/dynamic/nasdaq100_activity.stm