5/12 Scan

This was a difficult scan to deal with. The average directional index (adx), which I use to gauge the strength of trends, isn't providing clear guidance. I've had to alter one of my tools to accommodate the problem.

Here's what I've done:

By my rules, I look for trades that are in line with the broader trend, and I insist on an adx reading of 30 or higher.

The swift descent of prices in the past week have produced strong adx readings, but they mean nothing when used in conjunction will bull signals. And their strength was exaggerated by the riot of the rogue robots on May 6, when stupid assumption programmed into trading computers and stupidly piecemeal market tripwire policies caused a 3-minute decline in prices that brought some blue-chip stocks, instantly, down to 1¢.

So the adx is poisoned, and will be for a few weeks more.

To cope, I've turned to the 20-day moving average, which only uses closing prices. The intra-day lows of the panic will have no effect.

For a stock uptrend to be considered as having sufficient strength, the stock price must be trading decisively above the 20-day moving average, and the ma20 must be moving sideways at the least, and in an upward direction, even better.

No bear signals today except for bear funds and ultra funds, which are categories that I don't track.

Bull signals on the parabolic sar.

Acceptable adx but trading below the ma20: AAB, AET, AMR, CCE, HK, MTG, MXIM, QCOM, XLI (pierced the ma20 slightly, but not decisively), XLNX and XTO.

Marginal or low adx: ACE, ADBE, ADM, ALTR, DIG, DVN, IBM, KGC, KO, LSI, LUV, NG, PLD, SMH, UAUA, UBS, UNG, V and XME.

A reminder that a signal with a weak trend doesn't necessarily mean that it's a bad trade. The signal could mark the start of another leg in an stock that's oscillating sideways. The distance between today's price and next resistance could be broad enough to allow a useful trade.

Technical tools provide a way to screen stocks rapidly. But in the end, the trader needs to look at the individual case, and make a decision based on specific price levels and risk-reward ratios.

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The Investor's Guide to Active Asset Allocation: Using Technical Analysis and ETFs to Trade the Markets

Martin Pring's detailed deconstruction of the economic cycle: What sorts stocks to look for at each stage of the recovery. A masterful analysis.

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Skynet Panic of May 6
Panic Looks Like This
Skynet Panic Poisons Technical Tools

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