Chartists' Plays for an Extended Bull Market - Barron's

by: SA Eli Hoffmann

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Charting the Bull's Next Move by Suzanne McGee

Summary: Technical analyst Ralph Acampora says the charts indicate large-cap stocks are due for their time in the sun. A "smile pattern" emerges when a stock flatlines for an extended period following a sharp decline, then begins to rise. The bigger the base (period of flatlining), he says, the larger and more extended the following upturn: "you can see giant moves; doubles, even triples. And you see them last for two, three years." Big-cap stocks he likes include Xerox Corp. (NYSE:XRX), Schering-Plough Corp (SGP), Qwest Communications International Inc. (NYSE:Q) and Verizon Communications Inc. (NYSE:VZ). Conversely, the "frown" pattern (sharp rise, flatline, and downturn) can alert traders to stocks about to suffer: he names Starbucks Corp. (NASDAQ:SBUX) and Whole Foods Market Inc. (WFMI). Merrill Lynch's Mary Ann Bartels says bear markets are rare, and that when the Dow emerges from a bear market, it launches into a 20-year bull. She advises clients to buy on pullbacks. Jeff deGraaf of ISI warns against fighting the bull: "If you want to make one mistake consistently that will end your career, fight the trend." John Roque of Natexis Bleichroeder is betting on commodities. After studying price patterns of gold vs. the DJIA (NYSEARCA:DIA) over more than 100 years, he's convinced gold's (NYSEARCA:GLD) bull move is only half done: "We're going into the eighth year in which gold has outperformed the Dow... There have been two prior cycles like this, and both have been 14 years in length." He also likes energy stocks which, despite a bull run, are still only 10% of the S&P 500, vs. a 12% historical weighting.

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