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Hello out there stock charting fans. I see we had a little failure on Friday in an attempt to arrest the
downside behavior of the past two weeks. This may or not be as a result of Monica and her spotted dress.
Maybe because we are at that end of the dreaded 4 year cycle that comes around about every 4 years. Or is it
the GM strike, or the measly 1.5 percent GDP that was shown on Friday. Or is it that earnings are diminishing
at a rapid pace or will diminish further as the rate of growth slows. Or maybe that the P/E’s are so high as to
not justify the continued upward surge in stocks.
I can assure you that it is most of the above. I see that many of the oscillators that I follow are deeply
oversold right now, but so far that hasn’t help much. So I did a little checking of some other areas that would
normally con rm this over sold condition and guess what, There is no con rmation in these other areas. In
fact they are so far into the opposite direction that this leads me to believe that we are in for some very
tough sledding in the near future.
These two other areas that I referred to are the Trin [10 day Open Arms index]. It’s at 1.03 and it needs to get
down to the 1.10 level or lower, to the 1.20 level, and the 10 day moving average of put/call ratio needs to
get down to the 1.50 mark. The put/call ratio is currently at 1.03. I have found that all meaningful bottoms
come when all the oscillators and the Trin and the put/call are all in unison.
Of course we have that lovely time just around the corner know as October. This is a tough time because it’s
the corporate year end for the mutual funds. which means it’s their tax season.
Plus after that, we have the other time known as tax selling season for the little guy. That season is the
month December. The little guy with losses will be selling en masse to offset any possible gains that he or
she may have had during the past year.
So to sum it all up, I think we could be in for some tough sledding ahead. What to do? I think be on the side
lines in cash is best. For those of you that want to short, may I remind you that shorting is much different
than going long, and requires a very different kind of mind set. I nd patience is the best virtue here. So for
that right individual, I will list some potential shorts that look good as soon as you can nd a trend line to
break or a moving average or a triangle formation or some support line to break.
WEEKLY STOCK PICKS
Medimunne Inc.( MEDI) - $58

Stock just threw in a lemon quarter and the market is yawning. The stock is creating a series of lower lows and lower highs.
May have to wait for a pop in price before you short.
Pixar Inc. (PIXR) - $47

It’s sitting on a trend line and ready to break it any day.

Mindspring Inc. (MSPG) - $40

This stock has just split 3/1 and you can just imagine what will happen here as someone who bought 400 shares at $150
before the spit now has 1200 shares. A 10 point drop on 400 shares is only $4,000, but a 10 point drop on 1200 shares is a
$12,000 hit on the portfolio. I’m sure we are going to see margin call after margin call on this one. I love to short stocks that
have split for this very reason..
Lason Inc. (LSON) - $48

Just under cut the 50 day moving average line and the whole group is breaking hard.
L H S Inc. (LHSG) - $59

A nice gap to the downside and volume continues to expand. Also there was a 2/1 split back in May so we may see some
heavy selling after the stock declines further. "Margin Call"
Double Click (DCLK) - $44

Nice consolidation here and set to move lower. Short here and cover if the stock moves up 2 to 3 points. Stock is sitting on
the 50 day moving average now.
Dollar Tree Stores (DLTR) - $45

Stock has just started it’s decline and had high volume at the top and no upside movement. This shows selling at the top.
Citrix Systems (CTXS) - $63

The stock is just sitting on the 50 day as I write. This stock hates corrections has always tanks hard. P/E of 47 and is very over
owned by the institutions. Next stop is $50 or lower.
C M G Inc. (CMGI) - $68

Look out below. Stock has a recent 2/1 stock split under it’s belt, and a double top as well. Look closely into the high volume
at the top on this stock two weeks ago. Do you see where all the closing were, at the close of the trading day. I see them as
being at the middle or at the lower end of the intra-day trading range. To me, this means that there were many sellers at the
top. I would short this stock on any bounce that you can nd and hold until it squeals.
B M C Software (BMCS) - $49

Look at the hard break off the top on very high volume. Stock has just under cut the 50 day moving average line and looks to
drop hard and fast to $40.
Aspect Development (ASDV) - $61

Look out below. Stock has a very high P/E of 111 and a very hard break at the top. Stock is violating all support lines as well.
Short here or higher and hold till late December or so. Stock is very over owned and could be a real stunner to the downside.
Amazon Inc.(AMZN) - $110

A classic double top and the stock can’t nd a rope to help it oat. The 200 day moving average is at 44 and the 50 day is at
90. I would short here and hang on to maybe 75 or so. I can hear it now on these internet stocks "Margin Call". Be prepared
for some wild rides. Not for the faint of heart.
Broadcom Inc. (BRCM) - $62

Stock is failing at every turn. I sold when it had base failure at 76 and with good reason. The stock had a lemon quarter and
the street knew it was coming. Stock will not be the next Ascend for sometime. Stock is set to take the elevator down to the
next level. Draw ascending trend line and wait for the break.
Real Networks (RNWK) - $29

Elevator down. This stock has just nished the snap back from the rst leg down which was from $48 to 25 in 4 days. This is
one wounded duck. Short here and hang on.
Peregrine Systems (PRGN) - $34

Stock is just about to break down out of this formation. Short here and ride it to the $20 mark.
Peoplesoft (PSFT) - $37

Stock had a hard gap down on earnings. P/E of 67 and this stock looks to go much lower here. Snap back looks complete, so I
would short here.
Paychex Inc. (PAYX) - $40

Stock had just opened a little down on Friday and looks to breakdown much further. P/E of 65 and last quarter earnings were
up only 31%
Paci c Sunwear Ca. (PSUN) - $29

Another recent split of 3/2. Stock is just beginning to pick up steam on the downside and is under cutting the 50 day. Short
here and look to cover at $20 or so.
New Era Of Networks (NEAON) - $36

Stock is just beginning to roll over. I would short here look to cover at maybe $20.
Network Solutions. (NSOL) - $36

A continuing series of lower highs and lower lows. Stock could drop down hard at any minute. Jump in here and look to cover
at maybe $25 or so.
National R.V. Holdings (NRVH) - $26

Stock is breaking hard on very high volume. Just now under cutting the 50 day moving average and a recent 3/2 split. Short
here and hang on.
I would short all of the Drug stocks and almost all of the big board stock now, as their P/E’s are outrageous
compared to their growth. In addition to the high P/E’s they are just starting to create a series of lower highs
and lower lows. Almost all N.Y. stocks are all looking very sick right now, and most of the big bank stocks that
usually have held up well in a market correction, are also breaking down here.
I would like to mention one very important thing here that has been mentioned in the press, and that is the
record high amount of people on margin. I suspect that many of these people are new comers to the margin
game, and this could be there rst taste of a real hard market correction or possibly something worse. Of
course, this is good news for my readers. If you are out then ne, and if you are short then even better.
My point here is, that all of these new comers will provide additional selling pressure if the market turns for
the worse . The more people that are on margin, the more people they are to be sellers in a hard downturn in
the market.
I will have more for you during the week. Thanks Dan
Dan@chartpattern.com

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