Once again it was an either/or market day, only today we saw the big-cap tech stocks come alive while everything else sat it out. Breadth was flat. Net volume (up minus down volume on the NYSE) was negative by almost 2 to 1.
But that’s been the nature of the market for months and it hasn’t changed. If you want to know when it might change -- if it might change -- I would say wait until it becomes the topic du jour. I have seen a few people begin to refer to it, but it hasn’t been constant, non-stop chatter yet. When it does become non-stop chatter, we’ll know everyone sees it, everyone is playing it, and then the theme of the market will change. Because that’s what markets do: they teach you a pattern over and over again and when we finally have the pattern down pat, they change the pattern.
One thing I do feel as though everyone sees is the short-term overbought-ness. My experience is that when everyone sees the short-term overbought-ness the market ends up with a few options. The first is that we don’t go down but rather chop. The second is that the market has one last rally left in it, the sort of rally where everything rallies at once (no more Either/Or!) so they forget about the overbought-ness because maybe there is a new high in the S&P and the DJIA and Nasdaq so it’s more of a celebration. Can the market simply correct as the third option? It can. But that would be accommodating market players, something that it typically chooses not to do.
With that in mind let me show you the Nasdaq Momentum Indicator. What I do here is plug in higher closes for Nasdaq over the next week to see when those higher closes no longer lift the Momentum Indicator. Right now, that day is Friday. As a reminder, the timing of this indicator can often be perfect, but it can also be off by a few days. But you can see the swings in the last few months have worked out, be they overbought or oversold.
The Daily Sentiment Index (DSI) for the VIX did not budge; it remains at 10 which simply tells me we should expect a bout of volatility, likely next week. The Investors Intelligence bulls didn’t quite make it to 60% but stopped shy at 59.2%. That’s pretty close
These items make me think that the risk/reward right here is not great. Either we chop or correct next week.
I was asked if I can review the chart of Apple (AAPL:Nasdaq) which I haven’t done in quite some time. I actually like the chart. It has spent time in a correction for two months and has formed a W pattern in that time. I don’t know if it can breakout over $125 on this current move (meaning short term) but overall it’s a decent chart.
I was also asked to follow up on Pepsi (PEP) - Get Free Report which I recommended months ago and quite frankly hasn’t done very much since then. If Pepsi can ever get over this $145 area, I think it would be a nice breakout. It’s what my expectation was months ago and for now I haven’t changed my view. There would be a target in the$ 150-$155 area.
The Volume Indicator is just about overbought since it resides at 54% and over 55% is overbought.
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.
Fastly (FSLY) - Get Free Report offers an interesting lesson. The tech stocks just had their worst two- day whack in months and this stock was already under the top/support and yet look at it: it barely sold off. Is it sold out? Did the selling dry up? Or were folks just moving elsewhere? Technically the stock ought to come down to near $40 (yes,$ 40) but I say if it gets up and over $80 this will look like a false breakdown. Keep your eyes on it because once we get back to an oversold condition if there are too many shorts in it, it may rally hard.
I am not a big fan of stocks that have very little history on the charts and Maxeon Solar (MAXN:Nasdaq) is one. There is the potential for this to be a head and shoulders bottom but the stop is way back under that early November low so if you are willing to risk that much, then I’d say it’s interesting.
Poor Wells Fargo (WFC) - Get Free Report couldn’t even cross the downtrend line when the banks rallied hard the other day. I would be willing to have a look at this on the long side if it filled that gap down near $22.50.
It’s been a while since we looked at Boeing (BA) - Get Free Report and it finally did cross that downtrend line. I’d be willing to take a stab on the long side near $170. If it filled the gap near $160, I’d like it even more.