Friday did very little to change my view about a pullback in the market this week.
You already know the reasons, but let me note a few. We’re overbought. We’re overbought intermediate-term. The number of stocks making new highs, while improved on Friday, is still fewer than a few months ago. The new lows are on the rise, as well.
Breadth, while up, is no longer leading. You might have noticed the transports, semis and banks were down on the week. Energy missed by a fraction or two. The Dow Jones industrial average and the S&P 500 have resistance up here from trendlines.
I should note that the Insider Sell/Buy Ratio is literally off the charts. A high reading has typically been near 70, and it is now 143. There might be something in there, like a big sale (think Virgin Galactic Holdings (SPCE) - Get Free Report), but that would be rationalizing an indicator, something I prefer not to do.
I will also remind you that this indicator rarely lines up with a move in the market, unless it is lined up with Insider buying (i.e. when it is low it works better than when it is high). However, that does not mean it should be dismissed, especially when it is this high.
On the sentiment front, you know about the Investors Intelligence bulls at 64%, the four week moving average of the bears in the AAII poll, the 96% exposure rate among the NAAIM folks so none of that is new. To this I should add the very high DSI readings for the S&P and Nasdaq (over 90 last week) and the single digit reading for the Volatility Index, 9.
Here’s what we haven’t looked at though. The 10 day moving average of the put/call ratio is low and turning up, as is the equity put/call ratio’s 10 day moving average.
The 10-day moving average for the Index put/call ratio was really an eye-opener for me since the last two times it got this low were just prior to the early June swoon and the September swoon, as well.
To that we can add the put/call ratio for exchange-traded funds on a 21-day moving average. It is now the lowest, since the early October high. It was lower at the September high but was not lower at the February high of 2020.
There are two positives, or at least indicators, we can put in the positive column. Nasdaq, because breadth has been negative there six of the last 10 trading days (yes, it’s been that bad) will get short-term oversold in a hurry. Whether that means a rally for Nasdaq or the small caps is not clear. I suppose it could also tell us just how weak it is underneath, too. But I’m giving it the benefit of the doubt.
The other positive is that the NYSE McClellan Summation Index has continued to rise. It won’t take much to halt the rise, but the direction is currently up.
I had recommended Packaging Corp of America (PKG) - Get Free Report in the mid-last year and it had a nice run and then has done nothing for six months. If it can get through this resistance around $142, it would be nice. We’ve tended to have success with these rounded bottoms. Earnings are on April 26th.
The new lows for Nasdaq are almost back to triple digits.
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By now you know I like the drug stocks. I was asked about Eli Lilly (LLY) - Get Free Report, which bounced nicely off support at the blue line. I would look for a move to resistance around $195-$200 and possibly even a gap fill near $205. Earnings are April 27.
I look at the chart of Advanced Micro Devices (AMD) - Get Free Report, and I see the potential for a big top. However, since nothing ever seems to break down in this market, I have drawn in those two blue resistance lines and if AMD can push itself up and over that $85-ish area there is plenty of resistance all the way up, but that would at least take it out of the danger zone and get it on its way toward improving. Earnings are April 26.
There is support here at this $26 area and much better at $22. I have no real feel for if it will break the blue line and take a stab at the black line. I think like many of the energy names it needed a correction. If it can stay sideways for a few more weeks (over the blue line), I will probably warm up to it again. Earnings are out Friday.
If Boeing (BA) - Get Free Report took a hit down into that $230-ish area I might warm up to it again. Right here it just seems like it is in the middle of nowhere. Alternatively a move over $260 would put a test of the spike high in play. Right now it is bounded by two spikes: the high at $280 and the low at $230. It needs to test one of them. Earnings are out on April 28.