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And the Market Chose … Door No. 1

As I put out three options last week for what could unfold, let’s look at the path the market has chosen – for now, at least.

The Market

It looks like the market took door No. 1 on Friday. I am referring to the three options I offered that the market had: the down-and-outers rally; Nasdaq comes down; or we continue as we’ve been.

So, for the day at least, option No. 1 was the way the market chose. The question is if it was yet another one-day wonder (or few-day wonder) only to see the down and outers die on the vine one more time. Bank earnings are out this week and in October when the banks reported third quarter earnings, the market liked them and kept the rally going (green arrow).

After the fourth quarter earnings, they got sold. After first quarter earnings, they got sold. I suppose the good news is that at least they are down and out in the big picture, having not rallied hard into the earnings. But the Bank Index was up over 5% on Friday, so there is room for them to pull back, I suppose.

They did fill the gap last week, and I have thought JPMorgan (JPM) - Get Free Report was worth a try, but I wanted to see a move to $88-$90 to buy and we didn’t quite make it to $90.

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Aside from that, not much changed statistically in the market during Friday’s rally. Let me share a few interesting statistics with you, though. Nasdaq’s volume was the lowest since April 22. Nasdaq’s volume fell off a cliff last week. The New York Stock Exchange’s volume did not. I usually think lower volume rallies are commonplace, so typically I wouldn’t be concerned, except as you can see from the chart this is unusual for Nasdaq.

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Even more curious is when we look at the five-day moving average of volume for Nasdaq: It has made a lower low vs. mid-June, as has the 10-day moving average (not shown).

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As we know, the 30-day moving average of Nasdaq volume relative to NYSE is at an extreme and has been since May. But notice that this ratio’s moving average stalled out in mid- June and hasn’t made much progress lately, despite Nasdaq’s torrid pace. All those peaks you see on the chart were associated with pullbacks in Nasdaq. For now, it has stalled, but not yet rolled over.

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In the meantime, my Saturday Twitter Poll revealed the highest reading for bulls yet. When asked which direction the next 100 points folks thought the S&P would go, 57% took Up vs. 43% down. I’ll say that is quite lopsided to the bulls at the moment; it is certainly the highest number of bulls I’ve had in the 2 months I have been doing this.

The DSI for Nasdaq nudged up to 93 and the S&P 500 moved back to 85. So, once again, an up day on Monday and the runway is short for continuation. It hasn’t mattered yet for anything more than a down day before the reset, but at some point it could … or should.

I will leave you with one chart that would get bulls quite excited should this line get crossed. It comes in just over 3200. If it does we should surely see the S&P DSI back over 90.

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New Ideas

I was asked about the chart of Micron (MU) - Get Free Report, which I had liked a few weeks ago when it was right around this price. It promptly dropped, popped and is right back at the same price. I would use this uptrend line as the guide. A break of that and I would not want to be involved on the long side.

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Today’s Indicator

There is an ounce of good news for Nasdaq: For the first time in three weeks, the 10-day moving average of stocks making new lows didn’t tick up but flattened.

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Q&A/Reader’s Feedback

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.

We’re going to start with the Utes, because several readers have asked about them. I am once again a fan of the Utes. As long as XLU (XLU) - Get Free Report doesn’t go under around $52, I think they work their way higher.

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Chewy (CHWY) - Get Free Report is not my kind of chart, but it hasn’t broken yet and as long as it holds over this $45-$47 area, it gets the benefit of the doubt that these last six weeks are just a consolidation. If it breaks down then I’d look for a move toward $40.

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If Thor Industries (THO) - Get Free Report can come down to the $90 area, I’d probably get interested in it, but right here it is in the middle of nowhere. It really looks like it’s just a correction for now since there is no lower high.

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CVS (CVS) - Get Free Report looks oversold enough to rally, but I suspect $64-$66 is where a rally would get stopped for now. Be careful if it breaks $60, because that’s good support.

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Simon Property (SPG) - Get Free Report had better hold over $60 or the chart gets spoiled in a hurry. How many charts have we looked at that look just like this?

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