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1,2 and 3-lettered stock become vulnerable

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Stock continue to hover near their sessions lows as market participants digest a recent string of lackluster earnings from company's like software giant Oracle (NASDAQ:ORCL) $8.03 -11% and recent earnings warnings from Dow components McDonald's (NYSE:MCD) $18.31 -3.17% and JP Morgan (NYSE:JPM) $19.50 -9.51%, with the latter two stocks threatening to close at new 52-week lows if current trading levels hold.

Key technicals we alerted traders to be monitoring last week has the more institutionally held stocks in the NYSE Composite ($NYA.X) 467.44 -1.36% weakening and has the point and figure chart of this broad market composite giving a triple-bottom sell signal at 470. This is the first "outward" appearance of technical damage taking place and follows a patter of recent triple-bottom sell signals from the Dow Industrials (INDU) 8,084 -1.49% from its $50 box at 8,750, and the S&P 500 Index (SPX.X) 860 -1.54% from its triple-bottom at 930 on less conventional $5 box scale.

NYSE Composite Chart ($NYA) - $5 box scale

Today's trade at $470 in the NYA is a technical negative and hints that supply (O's) is begging to outstrip demand (X's) on a more meaningful basis. Last night's warning from JP Morgan (JPM), which is a 3-letterd and NYSE listed stock has put selling pressure on other "banking" stocks, which the bulk are listed on the NYSE.

I've pointed out a past "spread-triple bottom" sell signal up at the 555 level in early June, just after the "red 6" on the p/f chart. Traders and investors can begin making some time reference from that point with the NYSE Bullish % Chart ($BPNYA) from www.stockcharts.com, which measures the percentage of stocks listed on the NYSE, which have their point and figure charts on a "buy signal" still intact. The bullish % is also a very useful tool for understanding levels of risk and to ascertain internal strength weakness for the broad market index.

NSYE Bullish % Chart ($BPNYA) - 2% box

Traders and investors will start monitoring the NYSE Bullish % ($BPNYA) closer to see if the internals confirm what the externals (as depicted by the index itself) are beginning to tell us. Subscribers can look back at June (red 6) and make a correlation of how the bullish % confirmed that weakness was beginning to take place on a more meaningful basis.

Current assessment here is that 1,2 and 3-lettered stocks listed on the NYSE become vulnerable. Look for resistance to begin firming in the NYA at the 500 level. Should the bullish % chart above reverse back into a column of O at 40%, expect bears to begin leveraging off the NYA 500 level, with correlative stops in stocks they're short at that level.

Note: The NYSE has roughly 3,000 stocks listed on its exchange. Therefor, the NYSE Bullish % is very broad and it takes a lot of selling (supply) and buying (demand) to have the bullish % reversing course. However, the reversals that take place (up or down) tend to be "longer-moving." Just remember, the point and figure charting method uses the number 1-9 to signify the first chart entry for the months January-September, while the letters A-C signify the first chart entry for the months October- December.

Sometimes there isn't a chartable entry for every month, which hints that there was no MEANINGFUL move taking place.

Jeff Bailey
Senior Market Technician
Option Investor


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