An Historic Occasion

Wow. I stand here with jaw dropped and eyes wide open -- really wide. This is Thursday's (October 9th's) Industry Bell Curve. 46 out of 46 sectors tracked are in the 10% column. Astounding.

And have you ever seen anything like this NYSE chart?



Now I can imagine that this seems like a scary, unpredictable, treacherous situation to be in in the market. I can understand that the fight or flight syndrome meter is leaning way over towards the "flight" reaction. But what I see is not pending doom, but pending opportunity.

In such an oversold market, there are bound to be exceptional opportunities to buy into some very undervalued securities. Now is the time to bring out the watchlist you've been making, to revisit those picks you'd set aside for "the right time" -- it's almost upon us.

I'm not saying to go out now and take positions in every sector that's hit 10%. That would be chancy. The signals we're receiving have to be taken in context of the overall market. And the overall market is a bit unpredictable at the moment, what with the subprime debacle, the credit crisis, the bailouts -- oh, the bailouts -- and the global rush of fear.



Above is the NYSE BPI. Notice that, after a brief flirt with 40%, the index plummeted past its recent support level.

"With all this turmoil, should I give up and get out?" NO! We are in a prime position to follow Teeka's advice to let the game come to us. Opportunity is in the wings, waiting to make an entrance. When it does, for those in the game, it will be an historic occasion.

Steel & Iron Update

Above is a copy of the Investors Intelligence Steel & Iron Sector BPI as of September 30th. I've marked the resistance levels (purple) and the support levels (green). It's broken past its previous resistance at 8% and achieved a new low of 6%. This sector has made 24 (count 'em - TWENTY-FOUR!) column changes so far this year. In 2007 it make 16. So it's been very volatile.

The one interesting thing I've pointed out (blue circles) is that when there is a slight upturn during a downtrend, it is usually followed by a severe drop (July and December 2007, June 2008) or a rally (July and September 2008). With this kind of volatility, I would definitely wait until I saw a significant move upward of at least four boxes (8%).

Now let's look at SLX.



Boy, what a difference a month makes, eh?

It broke through that support level at $75 we identified last update (see below), to hit its lowest level since early 2007. Notice how it found temporary support at $65 like it did in November 2007. It was a similar pattern in reverse: it found resistance at $68 and plummeted, resisted, and plummeted again.

This ETF is even more volatile than its sector, making 47 (that's not a typo) column changes so far this year (compared to 35 for 2007).



With the RSI creeping along near its historical low and the MACD at its lowest point over the last couple of years (and apparently edging lower below the zero mark), I would wait before pulling the trigger on this one. It's tempting since it's near its two-year low. If you must make a play here I would wait until the reversal in the sector BPI and then buy SLX.

I would be remiss, however, if I did not point out that, according to the perf chart of the securities from the CASH alert, SLX was the worst relative performer at 180 days, 90 days, 60 days and 30 days. A better bet might be HSVLY. Let's look.



Now that's more like it! If you can handle a little bit of a rough and tumble ride, this security looks like it would be a good candidate for range trading.



This is a daily candlestick chart for a year. If you go out two years you'll see the trend of the security is upward. I kept it at a year so we could look more closely at the tell-tale signs.

The red vertical lines show each time the RSI rose above 50 - even if it had just dipped below briefly. The RSI in this case was a perfect predictor of when this stock would go higher. The MACD was also very dependable here (green circles for crossover, gray for crossunder). We also see a negative divergence in the MACD from mid-March to June of this year (blue lines).

Though not optionable, the stock is currently trading at around $17. I think this is a very attractive candidate for purchase when the RSI once again broaches the 50 line.