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Down and Up

Here’s why I see a dip and another rally try ahead.

The Market

We got an overbought pullback. Will we see any follow-through on the pullback? We have not had back-to-back down days at all in the month of April. The last back-to-back down days for the S&P were March 31 and April 1.

But this time we are overbought. Sometimes I will hazard a guess on what the next day will do and I’ll say right now I have no idea, mostly because we are short-term overbought.

Let me point out, however, a few things. Breadth, after lagging last week, was not terrible Monday on a relative basis. Just recall last Thursday when the S&P rallied 16 points and breadth was negative by 760 issues. Today the S&P fell by 51 and net breadth was negative 1,620. Heck, it could have been well worse than negative 2,000 and it wasn’t.

But negative breadth means that the McClellan Summation Index, which is still heading up, has a cushion of negative 1,800. That means it would take a net differential of negative 1,800 advancers minus decliners to halt the rise. This means a few days of poor breadth would finally roll it over.

The Intermediate-term is still not yet overbought. Again the earliest I can see it overbought is next week, or more likely early May. This doesn’t mean the market gets a free ride to the upside until then. With the short term overbought and the intermediate term not yet overbought, it should mean some downside right now. Once it gets intermediate-term overbought it’s easier to get more downside. It probably means a dip and another rally try.

But the real story of the day was oil. Recall when I said in my note Sunday that a down day in oil would get sentiment, using the Daily Sentiment Indicator (DSI), to single digits? Well, I’d say 3 is definitely single digits.

I would expect crude to bounce in the next few days, especially with all the hysteria surrounding it.

New Ideas

The most interesting part of the action in crude oil today is that our old friend, the XLE – Energy Select Sector SPDR (XLE) - Get Free Report – did not take much of a hit, nor did the other energy fund XOP (XOP) - Get Free Report. I have been waiting for XOP to fill this gap near $50. That might be too much of an ask, but I’m still hopeful. Should XOP turn south and break last week’s lows, I would give up on it.

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CrowdStrike Holdings (CRWD:Nasdaq) is at resistance, which is also the first measured target. It might very well breakout, but I’m inclined to take a few profits here, even if it does.

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Today’s Indicator

The 30-day moving average of the advance/decline line, the intermediate-term Oscillator, is not yet overbought.

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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.

It is impressive that iShares MSCI Brazil Index (EWZ) - Get Free Report, an exchange-traded fund for Brazil, has held in so well. But at at the same time it is unimpressive that it has hardly rallied. If it can hold over this $24 area for a few more days, perhaps it makes a try at breaking out over $26. What I don’t like is that it basically made its high three to four weeks ago.

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I would like to see GLD (GLD) - Get Free Report pull back to tag that line, which is descending, so it goes lower over time. By then, whatever bullishness has developed over the last week or so should be gone. So I’d look to see if it was a buy down there.

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Pfizer (PFE) - Get Free Report, which I feel as though I have suffered with this forever, has now rallied back to resistance. The chart would be interesting if over the next few weeks we could see it map out a pattern similar to the one I have drawn in.

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