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JPMorgan, Intel Ready to Run


Look for companies in strong sectors whose charts have yet to get ahead of the averages.

Last Thursday (February 25) the markets staged a bullish reversal in the last half of the day trading. What started as a massive sell-off was almost fully recovered into the close, and was enough for my sentiment to go tentatively bullish. Up until this point, I'd been leaning a bit bearish, as setup after setup was telling me that we were headed lower. But flexibility is a major component in staying in this game, and I'm able to check any bias at the door and return to the charts for my next cue. After my review of thousands upon thousands of charts over the weekend, it was becoming clearer to me that the bulls weren't done rearing their heads, and that I better step aside or get on their gravy train.

To show you into the mind of a trading professional, let's take a look at some analysis I went through to come to such a conclusion and then find a couple of gems ready to run.

Pulling back the QQQQ to get an overall feel for the market, the following weekly chart shows that QQQQ has been drawing a channel for a couple of years, and as of the start of 2010, has re-entered that channel. Just a few weeks ago we tested support at the lower channel and it held. This was positive affirmation for a continuation of the trend started almost a year ago now. Point number-one would be to not fight the predominate trend when picking positions. Traders must determine what time frame they're trading in to determine this trend. This very simple rule will save a trader from getting blown out in a very strong trending market, such as we've seen off the March 2009 lows.

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For confirmation of the strength of the current market, I'll always take a glance at another index. The SPY offers such a look into the minds of big money managers. As a trader would quickly discern from the three-year weekly chart of the SPY, the index is embroiled in a long-term downtrend that's been punctuated by a very strong intermediate uptrend. While it will take some time for the longer-term trend to completely repair itself, we can easily make trading decisions in the intermediate time frame, as we're not beholden to any position and will cut losses at predetermined price levels.

An interesting setup occurring on the weekly SPY is the confluence of two independent trendlines, both of which are very strong in their value to traders. The horizontal trendline has been acting as support/resistance going clear back to the October 2008 gap that was filled in late 2009. Since that time, the SPY has been basing in close proximity to this trendline, while at the same time keeping an eye on the descending trendline going back two years. As you can see from the charts, what's transpired the past couple of weeks is that both trendlines are now acting as support areas for SPY, which could make any ensuing move quite bold. I'd like to see sideways consolidation along the way of any upward thrust, as any long-term sustainable move will need to digest gains and bring in new buyers to continue its run.

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The market indices are telling their story, and that current story is saying longs are the better play. A trader would next be well-served to look for companies in strong sectors whose charts have yet to run ahead of the averages. Once such company is JPMorgan Chase (JPM) which is drawing us a beautiful picture of what may lie ahead. The further back a trader can pull a chart to establish trends and support areas, the clearer the picture will be in the near term. As one can see from the monthly chart of JPMorgan back to 2000, it's been bumping its head on this papa trendline, and any upward break of this trendline may signify a substantial change in character is about to begin. As JPMorgan begins its assault on this area in coming months, my intermediate-term thesis will be solidified if it breaks through and holds above this long-term resistance.

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No positions in stocks mentioned.

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