THE CHART RULES FOR SELLING ARE THE SAME AS THE ONES FOR BUYING -- ENERGY SPDR IS RETESTING ITS RECENT BREAKOUT POINT --
USE THE SAME INDICATORS ... One of readers asked how to determine sell signals for stocks and stock groups. The answer is to use the same chart criteria for selling that are used for buying. Take moving averages for example. A stock in a long-term uptrend gives a buy signal when it crosses back over its 50-day moving average from below. Using that simple criteria on the Energy Select SPDR in Chart 1, the XLE closed above its (blue) 50-day average in mid-October (circle). It also closed back over its 200-day moving average which was an even stronger buy signal. If a trader "buys" on a crossing above the 50-day line, he or she should "sell" on a close back below that same line (blue arrow). The same is true for all other technical indicators. If you buy when an indicator turns up, you should sell when it turns down. It's that simple. It's also important to keep in mind that there different kinds of buy signals. Some come earlier than others. In my view, there are at least three places on Chart 1 where new buys could have been initiated.

Chart 1
FIRST BUYING OPPORTUNITY IN EARLY OCTOBER ... On September 26 and October 13, I ran headlines stating that the Energy SPDR was starting to bounce off important chart support along its 2006 lows near 50 (lower arrow). That was the first real hint of a bottom on the XLE and the first buying opportunity. On October 19, I posted a chart showing the XLE crossing back over its 50- and 200-day moving averages (after having cleared its late October peak at 54). That was a second buying opportunity. The third (and most recent) came at the end of November when the XLE broke out of its 2006 trading range (upper arrow). Although I was referring to the latest buy signal in my December 13 market message, it needs to be pointed out that were at least two earlier buying opportunties in the XLE. The question is what to do now.

Chart 2
THE XLE IS RETESTING BREAKOUT POINT... The daily bars in Chart 2 show that the XLE is retesting its breakout point around 59 which was made by the August high. The pullback has also come on heavier trading volume which isn't a good sign. The rule of thumb in charting is that price shouldn't fall too far below the breakout point. If it does, the upside breakout is negated. That hasn't happened yet. But it is being threatened. A more convincing sell signal would be a close below the 50-day moving average (which is now at 57.56 and rising). But just as there are different kinds of buy signals, there are also different kinds of sell signals. A lot depends on how short your time horizon is.

Chart 3
USING A POINT & FIGURE CHART ... I've been writing about the value of p&f charts for giving buy and sell signals. Chart 3 uses a .50 box size in a three-box reversal chart for the XLE. It shows buy signals at 54, 57.5, 59, and 60 (the most recent breakout). No sell signal has been given yet. A close at 58 or lower, however, would justify some selling. The XLE would have to break its mid-November low at 56, however, to justify more serious selling. That might also put it below its 200-day moving average.
AN EDUCATED NVESTOR IS OUR BEST CUSTOMER ... As a rule, I shy away from giving specific buy and sell recommendations. One reason is because there are so many different levels of signals. What's right for one person isn't for another. I try to point out what's happening on the charts and let my readers draw their own conclusions. I also expect that our readers know something about chart analysis. The more you know about charting, the more value you'll get from my messages. One of the great values of chart analysis is that it gives traders and investors the tools to make their own decisions -- both on the buy and the sell side. I can help in most cases by trying to interpret things for you. But I can't make buy and sell decisions for you. Nor do I want to. The paragraph headline is paraphrased from a New York clothing ad: "An educated consumer is our best customer". Stockcharts provides an array of valuable chart information to help you analyze the markets and make trading decisions. The more you know how to use them, the better off you'll be.