Sentiment is quite curious right now. I think the longer we go without some sort of whack or correction in the indexes, the more concerned folks get. At the same time I think the longer the divergence between breadth and the major indexes goes on, folks get concerned.
There is nothing clear cut about the former situation, but the latter, where breadth has not confirmed, is concerning. However, as I have said before, these sorts of situations can go on for months. We’re currently around two to three months into it. The longer it goes on, the more bearish it is. That’s just a fact of market life. In 2007, it went on for six to eight months. In 2000, it went on for nearly 18 months.
Here’s one example of concern in the market. The 21-day moving average of the index put/call ratio is nearing the level it was at in late October last year, which happened to be quite a low in the market, mostly for the economically sensitive stocks (Point C on the chart).
Points A and B arrived in the summer of 2010, a low in the market, and October of 2011, another low in the market. What's the main difference between now and the other three situations? The major indexes had tumbled into those lows. That is simply not the case now.
Even my weekend Twitter Poll shows more folks looking for more downside than upside. That has happened eight times since I have been running the poll over the last 15 months and each time the S&P has rallied the ensuing week. The difference? Each time the S&P was down heading into the week, not up at a new high as it is now.
We have the S&P 500 tagging the upside of the channel that has been intact since the spring and has resulted in some sort of a dip every time.
We have the Daily sentiment Index for the VIX having slipped to 8 late last week, which would typically mean it’s time for some volatility to come our way. Couple that with the Nasdaq’s DSI back at 89. The S&P is at 85.
As noted above, breadth is very mediocre at best. The number of stocks making new highs is still under 200 on both indexes and the new lows refuse to contract. I think the best thing the market can do is have a good whack, shake the complacency that I sense is around us, despite what the indicators say. And once we do that — similar to mid-June — I think we will find the economically sensitive stocks can rally again.
Will the market accommodate my view?
The 10-day moving average of new lows is on the rise again.
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 follow up on Salesforce.com (CRM) - Get Free Report which I had thought would be okay to buy near $240. It hasn’t done very much, but a move up and out of this range would be a nice breakout.
The best thing I can say about Personals (PSNL:Nasdaq) is that it is approaching a prior low, but I am not willing to bottom fish in it until it shows an ability to hold and form a pattern. As you may recall, bottom fishing in these types of names has been a losing proposition for us lately.
I am inclined to think DraftKings (DKNG:Nasdaq) will manage to eat through that resistance at $55. However should it trade back under $50, I would have to give up on it for now, with the thought that there is more work to be done building a base.
I will be impressed if Bloom Energy (BE) - Get Free Report can stay over $19. If it can then these last six months will look like a base. It is still so far from even completing the base - that would happen crossing over $28 - but the first thing it has to prove is that it doesn’t want to break to a new low. That’s what I’d watch for.
I suspect iShares Silver Trust (SLV), an ETF to be long, will run into its first resistance at $22.50. There’s an outside chance it pushes on and makes it to fill that gap near $23.25. If it can fill the gap then last week could look like a false break-down. We’ll have to wait and see.