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Down and Bounce?

Here's why even though we could bounce tomorrow, the correction probably has not concluded yet.

The Market

Those were our first consecutive down days for the S&P in April. Once again, let me note I would not be surprised to see a rally tomorrow. The only reason I say that is because -– and this is anecdotal -— last week no one had a care in the world, but by midday today, folks were getting much more concerned.

I might also point out that the Bank Index is nearing an uptrend line. The SOX is nearing an uptrend line, as well. So the same way the Energy Select Sector SPDR (XLE) - Get Free Report attempted to hold and bounce off its uptrend line, these groups may, as well. I would vote especially for the SOX, because it has been down for seven of the last eight days.

Yet, that is the only indicator I can cite that says we should bounce. The ISE ratio was under 100 for the second day, which is the first time since late March, but in late March we had been trending down for a couple of weeks already and were oversold. The number of stocks making new lows rose again, and now the New York Stock Exchange has joined Nasdaq. The NYSE saw the most new lows since March 25. The routine as always with this indicator is that we need to see it stop expanding and start contracting. Let’s say the market opens down tomorrow, if the new lows do not expand that would at least be the first sign that selling is drying up.

Breadth was terrible, much worse than yesterday, and the worst since March 23, almost a month ago. That means the McClellan Summation Index has rolled over (chart shown below) and now needs a net differential of positive 1,900 advancers minus decliners to halt the decline. At positive 2,000, it steps into oversold territory, at positive 4,000, it has gotten to an extreme oversold reading. So it is heading toward oversold.

In sum, we’re getting our pullback in the second half of April and while we may bounce tomorrow, I don’t think the correction is done yet. The indicators ought to cycle through back to oversold, back to too much bearishness, back to the point where the number of stocks making new lows contracts, etc. We’ve seen this routine several times in 2021, so by now you ought to be getting used to it. We’ll watch for signs that everyone else is getting used to it, because once everyone sees the pattern the pattern tends to change.

New Ideas

Here’s the support for VanEck Vectors Semiconductor (SMH:Nasdaq), an exchange-traded fund for the SOX: $235-$240. It ought to bounce. If it does, I think $250 stops it on the rally.

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I was asked to update my view on SPDR Gold Shares (GLD) - Get Free Report the ETF for gold. I have had this target of $166 for six weeks now, since that early March low. It has taken its time getting here. With some work, it ought to eventually get through and make its way toward around $170. Then the resistance gets quite heavy.

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Today’s Indicator

The McClellan Summation Index is discussed in full above.

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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.

Enphase Energy (ENPH:Nasdaq) looks similar to the SPDR S&P Biotech exchange-traded fund (XBI) - Get Free Report and the Invesco Solar ETF (TAN) - Get Free Report charts we have looked at earlier this week. They are at support and refuse to break. A break from here would measure to the $110 area so you know that if this support breaks that is likely where it is headed.

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The chart of Sunrun (RUN:Nasdaq) looks like a big top that hasn’t broken. There’s a theme in the market isn’t there? A break here of this $45 area would measure at least to that gap fill down near $22 and perhaps more.

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Anaplan (PLAN) - Get Free Report has the potential for a small head-and-shoulders bottom in the works. But even if that pattern comes to fruition it is going to take quite a bit of eating through to get it up and over all that resistance. So holding this $55 area is going to be important as we get to an oversold condition. I’d say let’s watch this one.

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If Alteryx (AYX) - Get Free Report can hold here around $20, then it has a head-and-shoulders bottom it is working on. The next few days should tell us something more about its strength or lack therefore. The real issue is the bottom is still quite small relative to the big top that is left overhead.

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Farfetch (FTCH) - Get Free Report broke down from a top, rallied to the resistance and is now coming down again. The good news is the top measures to $40-ish and that spike low ought to keep it contained on the first trip down. The bad news is that the top is several months in duration and should be resistance on any rally. I’d call it a trade on a retest of that March spike low and a sale on a rally to resistance.

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