As we look at the market today, we have one important question…

Is the market going to break out to the green trend channel resistance line, is it going to break down is it going to the green trend channel support?

Recently we’ve been talking about Trend Channel Support and Trend Channel Resistance. The markets though have been locked in a sideways trading range, which is really the same thing only there is no upward tilt to it. We technicians call it a “building a base”.

One look at two of the market’s main movers and shakers shows that a bullish mini Pullback Off Highs (POH) pattern is forming. Here’s a look at Apple’s (NASDAQ: AAPL) chart:

If the NASDAQ Composite continues to rollover then this issue is going to retest the sub 190 level, you then know what you need to consider doing at that level right?

If the composite plays catch up to the Dow and S&P 500, then the Pink Line is in play. The same goes for Baidu Inc. (NASDAQ: BIDU) below as well, only if we rollover expect BIDU to break into a new low on the chart below.

We are basically half way through the month and we still don’t know if the Grinch is going to steal Christmas or if Santa is going to brave the elements and pull it off.

With the indexes consolidating near the highs and remaining defined above their uptrend lines and 50-day moving averages, we want to focus on stocks that are in the same position and have simply pulled back off of their highs to those support levels. This is called trading in tandem with the market.

Now there are two ways to buy stocks. The first way is to find a stock that has formed a base and buy it when it breaks into new highs above the base. This is called buying a traditional breakout.

This stock can be bought upon a break above the green line.

But most breakouts after an initial run tend to come back and retest the area that was once resistance. We call that the initial pullback. So rather than chase the stock, we patiently wait for it to come to us.

In this case, the pink line represents the stock’s pullback off of its highs back to what was once resistance and is now support. Our buy point is a break above the pink line.

That’s a lot better than chasing a stock only to get stopped out as the stock retests support and then takes off without you.

So what do those rules mean for us today? Well, since the markets are consolidating in a sideways fashion, near their highs on light volume, now is the time to be prepared to take advantage of opportunities to buy stocks in confirmed uptrends at a risk-adverse place. And as always, we’ll be here to fill you in on the next penny stock plays to keep on your watchlist…

Sincerely,
David Grandey
AllAboutTrends.net

December 15, 2009

David Grandey

David Grandey is the founder of All About Trends, an email newsletter service revealing stocks in ideal set-ups offering potential significant short-term gains.  A successful canslim-based stock market investor for the past 10 years, he has worked for Meriwest Credit Union Silicon Valley Bank, helping to establish brand awareness and credibility through feature editorial coverage in leading national and local news media.

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