Skip to main content

An Ominous Pattern Emerges

Don't get stranded on this island reversal.

The Market

I thought we'd end the day in the green, so I was wrong because we didn't make it all the way back. But it was a slight change from the last few days because breadth perked up again, barely red, with the S&P down over 10 points and then turning green around midday.

I know it seems all I do is harp on this subject, but as I explained yesterday, breadth is important and until it weakens enough for the McClellan Summation Index to roll over, the chopfest is likely to continue.

But today we need to discuss a chart pattern. It's an island reversal. I bring it up because I referenced it on the weekend on Twitter and now it seems my inbox is filled with folks pointing it out. It is an ominous pattern. You have seen me discuss it when it comes to stocks. It is also a bullish pattern when it appears at a low. Longtime readers will recall this bullish pattern in JPMorgan (JPM) - Get Free Report that I flagged at the lows about one year ago.

Image placeholder title
Image placeholder title

If that gap left from Monday's trade does not refill (so the S&P would have to say under 2290), then it gets more bearish. So why aren't I screaming from the hilltops to sell everything? Because I care more about the indicators when it comes to the "market," and until we get a downturn in breadth it seems difficult to get so bearish.

There are plenty of indicators that are not confirming the move on the upside. You've heard me discuss them daily. Today we would add that the number of stocks making new lows on Nasdaq has increased to levels not seen since late December. That's with Nasdaq at all-time highs. But to get real downside, breadth must falter for longer than a day or two.

Away from that, the utilities came to life today. I don't know if they can break out on this try (they might need some more backing and filling), but if they do cross over that line I suspect folks might finally take notice. This group remains one of the groups nearly everyone says to avoid, so of course I am drawn to it!

Image placeholder title

Tomorrow we get the Fed non-announcement and then folks will turn their heads toward Friday's employment number. I think we can make another try higher tomorrow, but in the end it is still my view that the best we can really do on the upside is this giant chopfest we have lived in for six or seven weeks. And we'll continue to watch that island gap.

New Ideas

TripAdvisor (TRIP:Nasdaq) does not report earnings for another couple of weeks, but it continues to hand in there. There is a measured target around $57. There is the spike high around $56 and there is the gap fill near $60. So let's say if it can get going from here, the target would be in that wide spread between $56 and $60. I probably would not want to be long into earnings, though.

Image placeholder title

Today's Indicator

The McClellan Summation Index is discussed above. It is still chopping sideways.

Image placeholder title

Q&A

Helene welcomes your questions about Top Stocks and her charting strategy and techniques. Please send an email directly to Helene with your questions. However, please remember that TheStreet.com Top Stocks is not intended to provide personalized investment advice. Email Helene here.

I was asked to revisit GlaxoSmithKline (GSK) - Get Free Report, which we looked at about a month ago. It is one of the few drug stocks I like (Abbott is another) and I think it is trying to bottom. While it has plenty of spikes to overcome (one near $40 and another around $40.50), I think if it can get over that blue line it should make a try for the black line, and if it does that it improves the chart greatly.

Image placeholder title

I know we looked at Arconic (ARNC) - Get Free Report recently and I honestly cannot recall if I liked it or not. The blue lines represent some sort of fan line with the black line being the biggest obstacle and would be considered the third fan line. Once you cross the third line, it is supposed to be quite bullish (or bearish if you break the third fan line of uptrend lines). If it can cross the black line, the measured target is near $27.

Image placeholder title

I see very little reason to buy Gulfport Energy (GPOR:Nasdaq). The black line gives it some support since you can see it bounces off it every time, but it is in a downtrend. It's also possible there is an unfulfilled measured target near $16.

Image placeholder title
Dow is the Most Vulnerable to Profit Taking

Dow is the Most Vulnerable to Profit Taking

Despite the newfound focus on the Dow Jones Industrial Average last week, it turns out we may be seeing the last gasp of outperformance here.

How Hungry Is This Market?

How Hungry Is This Market?

Here's what I'd like to see happen with this rally -- I'd like it to show some FAANGs. Here's why -- and a look at Microsoft's chart, news highs and more.

Sloppy With a Chance of Rallying

Sloppy With a Chance of Rallying

Here's why I see another rally before the weekend, even amid the messiness, and a bump for Amazon.

Sloppy With a Chance of Rallying

We Can Rally Just a Bit More

Energy stocks have a lot of complacency in them.