Technical analysis is becoming a mainstream way to time and predict stock moves and market tops and bottoms. Carter Worth, chief market technician at Oppenheimer, joined the panel to explain what he’s seeing – and where he thinks we’re going.
The stock market is bifurcated, Worth says. There is pronounced and unusual strength in certain parts of the market and equally pronounced weakness in other parts (materials, energy and industrial stocks are unusually strong while consumer discretionary and financial stocks are unsually weak). He points to a chart of BHP Billiton (BHP), the world’s largest minerals company versus Wal-Mart (WMT), the world’s largest retailer. BHP is outperforming WMT at a 130% clip.
The same point about bifurcation can be made by comparing charts of an oil service name like Schlumberger (SLB) versus a bank like UBS (UBS), or a steel stock like Arcelor Mittal (MT) versus an automaker like Toyota (TM), Worth says.
Unfortunately, history has shown that bifurcated markets are usually resolved by stocks at the strong end of the market succumbing to the same selling pressure affecting weak stocks, Worth says. He would sell positions in extended names in the materials/industrial sector based on this theory.
The immediate future of the stock market suggests weakness, not strength, he concludes.
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Trader disclosure: On Sept. 25, 2007, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders: Najarian Owns (AAPL), (VCLK); Finerman’s Firm Owns S&P 500 Puts, Russell 2000 Puts; Finerman’s Firm and Finerman Own (HD); Finerman Owns (NMX), (NYX), (TGT), (VCLK), (WMT)