The market started to run out of momentum about mid-morning and then spent the rest of the day trying to recapture it. That ‘s what an overbought market does.
Well, I should rephrase that: This is what an overbought market with good underlying statistics and breadth does. It digests.
Wednesday the market could be focused on the Transports. I wrote about them recently, noting I thought they should rally – and they did -- but at the same time I was quite concerned at their inability to make new highs.
With FedEx’s (FDX) - Get Free Report earning miss, we have some things to pay attention to. You can see on the chart that the $150 area is support. I would like $150 to break and then snap back, because that would tell me the selling is done. Will I get it?
More to the sentiment point: Should the market be able to rally in the face of the FDX news, I think we will hear (probably non-stop) that transports don’t matter. And that probably takes us to giddy.
I mean, sure we’re close, but days like Tuesday are not what gets us there. The S&P 500 trading lethargic and flat on the day gets us the DSI back down to 81. We did get the Investor’s Intelligence bulls back up, this time to 57.7% – just shy of the 58.1% we saw prior to Thanksgiving. So the Investor's Intelligence readings are knocking on the door of euphoria now.
The put/call ratio sunk to 65%, so that finally showed a move toward complacency.
In any event, both the S&P and Nasdaq have been positive for five-straight days. There is no rule that says the sixth day must be red, but the S&P hasn’t gone beyond five days since the spring and Nasdaq hasn’t done so since early July. Both could use a rest.
Walgreens Boots Alliance (WBA) - Get Free Report has pulled back to the line I drew in, and it is getting mighty oversold, so it ought to bounce. But why has the market been up for five- straight days and this can’t even rally?
Sticking with the transport theme, Delta (DAL) - Get Free Report, which I highlighted as a good chart a few days ago, is heading toward its first resistance in this $59-$60 area. A pullback toward $58 would be healthy and buyable.
Johnson and Johnson (JNJ) - Get Free Report has had quite a run since I recommended it in the mid $120s. It is also up against some old highs. I wouldn’t be opposed to taking something off the table. I would like to see a pullback toward $140-$142 and a re-rally to see if this really is a top or a weigh station. Either way, it feels stretched to me.
The McClellan Summation Index is still heading upward.
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The chart of Bausch Health (BHC) - Get Free Report had a terrific run and has given back some of the gains in recent days. That breakout measured to the $31-$32 area so the chart is doing what it ought to: correcting. For my taste, I would like to see it correct more or go sideways for a period to digest that near doubling since October. In the very near term, it ought to have a small bounce off that blue uptrend line ($28-$29). A move back under $27 would signal this correction is more severe than just a sideways digestion.
Illinois Tool Works (ITW) - Get Free Report hasn’t done anything wrong, but it’s not my kind of chart, because it’s up too much (I prefer 3M (MMM) - Get Free Report in the industrial space now, or Alcoa (AA) - Get Free Report because they are still down and out). If the chart pulled back to the $170-$712 area I would be more interested in playing for a bounce.
The question on the chart of Zumiez (ZUMZ:Nasdaq) is whether that gap up and subsequent filling of the gap is bearish. It isn’t, but obviously a gap and go is stronger than a gap and refill. But take a look at September’s gap up. Sure it kept going — for one day — and then it eventually came down and filled the gap In November). It ought to bounce since it must be getting quite oversold now.