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Point & Go Figure: BAC, HNZ


Risk versus Reward


Market Overview:

The short-term conditions remain positive but are still at high-risk levels. The pattern of lower lows and lower highs persists for both the NYSE and Nasdaq Composite Percent Above 50-day Moving Average Indicators.

The High-Low Indices for the NYSE and Nasdaq Composite are positive (in columns of Xs), but there again the negative divergence - lower highs - persists.

The longer-term bullish percent Indices for the NYSE and Nasdaq Composite are both still in Xs, but the larger pattern of lower highs there also remains intact. The more narrow S&P 500 and Nasdaq-100 Bullish Percents are both still negative, and not even close to a reversal higher. In fact, the S&P 500 Bullish Percent was actually lower yesterday.

The picture of high risk these indicators paint continues to frustrate as the market indices make new highs in some cases. But a look back at 1999 shows a similar frustration period as broad indices made new highs on divergent indicators throughout the year before a downside resolution occurred.

Charts of Interest:

Today we have two cases where a stock has registered a DeMark 13 sell signal in conjunction with a failure to make a new high. As Goldman Sachs (GS) has shown us, it is frequently dangerous to sell short stocks that are making new highs. Although stocks making new highs will certainly... at a point... put in a fixed high, they also frequently exceed upside expectations and make risk/reward and trade management difficult. In my opinion, a better case is when a stock registers a sell signal while failing to make a new high. Below are two examples.

Bank of America (BAC)
(Chart courtesy
Dorsey Wright)
BAC has consistently failed to exceed the 47 area for more than two years now. Meanwhile...

Bank of America (BAC)
(Chart courtesy Thomson Financial)
BAC has registered a DeMark TD-Sequential 13 sell signal on the daily chart.

HJ Heinz (HNZ)
(Chart courtesy
HNZ has enjoyed a nice rally since February. It is on a PnF buy signal and in a column of Xs, but remains below the December 2004 high and...

HJ Heinz (HNZ)
(Chart courtesy Thomson Financial)
The stock has just registered a DeMark TD-Sequential 13 sell signal on the daily chart.

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No positions in stocks mentioned.

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