A Deep Post-Decline Analysis, Part 1

Tickers in this article: AAPL CSCO CY ETN FITB HBAN HPQ IBM KEY NUE NWL ORCL SHW SWK TOL WDC WFC WHR WY

After the first down week in ages, nothing refreshes like a look at the charts.

When they are all going up pretty much in unison, the charts do not have a lot of added value. But when we have a decline, particularly a midweek decline including an intraday calamity, they have terrific value. We can see what's gotten vulnerable, what's pulled back and ready to go, what's overextended and what's just plain old broken down.

For the record, I use the S&P's Trendline (hard copy) Daily Action Stock Charts, as I have for 26 years, hand delivered Saturday. They measure stocks using 30-week and 10- week moving averages and, while I am not a chartist, I always respect the profession, as Karen Cramer, whom I worked with for years and years, was a fabulous technician and she took these very same charts and generated a host of charts that she liked and didn't like and then told me to find research on any of them to come up with potential trading ideas.

I like to divide the charts among those I think represent pullback opportunities, those that seem overextended, ones that appear to be on the precipice, and stocks that are breaking down hideously. I then try to find patterns among them that can justify the depictions presented. Of course, not everything shoehorns, but often the buckets make sense because of specific group issues that have arisen into the selloff.

So, let's start with the best-in-show charts, looking for ones I think, to borrow a phrase from the old research department at the old firm that was Pru, are twice-blessed: good-looking chart matched up with intriguing fundamentals.

The best-looking group coming out of the selloff, BY FAR, is the banks, specifically the regional banks. I am struck by how so many of the regionals, Fifth Third (FITB) , First Horizon (FHN) , Key (KEY) (an Action Alerts PLUS name) Huntington Bancshares (HBAN) and even Wells Fargo (WFC) look. I think that's the tipoff that lending is coming back. Watch this group after Bernanke talks at 10:00 a.m. ET Tuesday on Capitol Hill. Given the immense number of downgrades and number cuts the group has withstood, there might be something bigger going on here than just the same old pat worries about shrinking net interest margins.

Second-best looking? The cyclicals, which were pounded hard last week over worries about China's newfound weakness (liquidity being withdrawn) as well as Europe's endless woes, including another dip down, this time in France.

Here the two most intriguing charts are from Manitowoc (MTW) , which many know I believe will be split into two companies, food service and cranes, and Terex (TEX) , the crane company that reported a subpar quarter. These are signs of commercial real estate progress, in keeping with the recent spike in architectural billings, an important indicator of future growth, and they buttress the beauty of the regional bank charts.

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