This is a tough week for stock mentions as the indexes will be a deciding factor over the next couple of weeks. With the possibility of manipulative action due to the low volume and participation of a holiday week, only stocks with clearly defined small risk factors as well as strong support or resistance levels were considered. It is likely, even though it is a holiday week, that in the first two trading days of the week you will know if the trade will work out or not.

RECN (Friday Close at 18.25)

RECN has been in a downtrend of some magnitude for the last few months as the stock has fallen from a high of 36.21 on July 16th to a low of 17.26 seen Friday morning. RECN began its strong drop on Sep 24th from a high of 29.90, after 5 analysts lowered their rating on the same day. On Friday RECN posted second quarter profits below Wall Street expectations and in the early morning trading was down over 10% in value.

On Friday RECN reached a major level of weekly support between 17.05-17.70 and showed spike bottom action. After the earnings report, the stock got as low as 17.26 and thereafter was able to rally up to 18.88 intra-day before closing out at 18.28. The spike bottom action as well as upward intra-day movement suggests that the stock may have found a bottom and may be in for at least a short-covering rally.

There is very evident support in the weekly closing chart going back to Aug 2004 between 17.05-17.70, The intra-week low in May05 was 17.40 and the intra-week low in Aug04 was 16.23. In looking at the chart these two support levels loom very strong and will be difficult to break, especially since all the bad news is already out and the stock finds itself is a very oversold condition. On the upside there is no evident resistance level of consequence until the 22.79 level is seen. That resistance level is considered minor but is also a major previous low, which means it is not likely to break unless the fundamentals change.

Purchases on RECN at 17.71, using a stop loss at 16.95, and an objective of 22.79 will offer a risk/reward ratio of over 5-1.

My rating on the trade is a 6.5 (on a scale of 1-10 with the strongest probability rating being 10).

CAT (Friday close at 72.77)

CAT has been in a 6 month downtrend that has not yet given a buy signal, on a weekly basis, that the trend has changed. This past week the stock rallied up to fill a gap it had left on the way down at 73.30 and ran into a very strong resistance level between 73.30-73.60, comprised of 6 previous daily low closes. In addition, CAT backed off and closed at another major previous low close area between 72.64-72.77, which, when broken the last time, generated a move down to the 67.00 area.

It is evident that CAT, as well as the indexes, are at a pivotal area that is likely to decide the direction of the marketplace within the next couple of weeks. At this moment CAT is still in a bear trend and since it is at a very important pivot point and resistance level it makes sense to be a seller as the risk is clearly defined and the profit potential strong.

Resistance, on a daily closing basis, is very strong between 73.30 and 73.60. On an intra-day basis there is evident resistance at 73.30-73.40 but if broken, there is nothing until 75.00 is seen. At 75.00 there are 14 previous intra-day highs or lows at that price making that level another major pivotal point. All the MA's are near-by with the 20 and 50 day MA getting ready to converge right at 72.80. The 100-day MA is currently at 75.00. Support is found at 70.84 on a daily closing basis and down at 70.00 on an intra-day basis. Below that there is nothing until the mid 68's are seen.

It is likely that the next two weeks will prove to be indicative of the direction of the next trend in the marketplace. With stocks such as CAT, which are at such clearly defined pivotal levels, a position should be taken as the risk/reward ratio is clearly defined and the risk is small. A sale of CAT at 73.16, using a stop loss at 73.80 and an objective of 68.50 will offer a risk/reward ratio of 9-1. In reality, if the stock is still in a downtrend, Friday's high of 73.36 should not be broken or, if broken, should only be broken by a few ticks.

Due to the manipulative nature of holiday trading, if the stop is hit, a re-sell of CAT at 74.98 using a stop loss at 75.46 should be instituted. The 68.50 objective is very probable if the stock fails here, nonetheless if the continuation of the downtrend seen in the indexes in August and November were to re-start in January, then the objective of the trade could be as low as 62.00.

My rating on the trade is an 8 if the 73.40 level does not break and a 6.5 if re-sold at 75.00 (on a scale of 1-10 with the strongest probability rating being 10).

RX (Friday closing price 23.15)

RX stock took a strong fall on Oct 17th due to a negative earnings report. The price fell from a high of 29.66 (the day before the report) all the way down to a low of 21.20. A couple of days after the initial drop, the stock found itself rallying up to high of 25.24, but since then, RX has trended lower making new daily and weekly closing lows and showing continued weakness. No strength has been shown in spite of a recent index rally.

Resistance is clearly defined at 23.50 and support at 22.19 and 21.99. Both the support and resistance levels have been recent and are both considered minor. In looking at the weekly chart going back as many as 10 years, major support is at 20.88-21.18. Should that level break, and based on recent action and the possibilities of the index downtrend resuming after the New Year is now a real possibility, the next support would be at 18.54 and then all the way down to the major support at $15.

The short trade is particularly attractive because the risk is clearly defined and very limited, the profit potential good to possibly great, and the trade is in the direction of the established trend.

Sales of RX at Friday's closing price of 23.15, placing a stop loss at 23.60 and having a minimum objective of 21.00 offers a risk/reward ratio of almost 5-1. The risk/reward ratio goes up exponentially should the $21 level of support break with objectives of 18.50 and 15.00.

The stop should be placed (not mental) and if stopped out, no further action on the stock should be considered at that time.

My rating on the trade is a 7 (on a scale of 1-10 with the strongest probability rating being 10).

TXN (Friday closing price 33.80)

TXN has been in a basic trading range between 27.00 and 35.00 for the past 2 years. With the trading range so clearly defined and the index market still in a sideways to down trend, the probabilities still favor TXN failing at these price levels.

Two weeks ago TXN rallied up to 34.60 to close a gap it had left open after the last drop down to 30.64. On that rally the strong weekly close resistances at 33.90-34.45 were tested, so far successfully. In addition, the daily close on Friday finds TXN exactly at the 100-day MA and at the 20 and 50 week MA's which are converging and crossing at the closing price of 33.80. It is quite evident that the stock is at a short-term major pivot point, which has a high probability of being resolved in favor of the established 2-year sideways trend.

Resistance intra-day is decent at 34.00 and strong at 34.60. On an intra-week basis and going back to Sep05, the resistance is strong at 34.11 and 34.29. Minor support is found at 32.82, then decent at 31.80, 30.71 (objective), and strong at 30.09.

Sales of TXN at Friday's closing price of 33.80 and up to 33.90 and using a stop loss at 34.70 and an objective of 30.71 will offer a risk/reward ratio of 3-1. If the indexes get back into a downtrend after the New Year, then a drop down to the bottom of the trading range at 27.00 is possible. Such a drop would make the risk/reward ratio go up to 6-1.

My rating on the trade is a 7 (on a scale of 1-10 with the strongest probability rating being 10).