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Down, but Not Bad

Tuesday slipped at the day’s end, but the statistics behind the action were not too shabby.

The Market

Well, we were in chop mode until those final minutes of the trading day on Tuesday, when we gave way to some selling.

In reality, the statistics weren’t that bad. For example, the S&P 500 lost 23 and breadth was negative 700 on the New York Stock Exchange. To put that in perspective, the S&P 500 was up 35 on Monday and breadth was positive 1,500. So, when you add up the two days, the S&P is up 12 with breadth at positive 800, which seems in line to me.

The number of stocks making new lows didn’t explode higher, either. That means the 10- day moving average of new lows is still falling.

Aside from that, it just continues to be sloppy action.

Statistically, not much else was there to hang our hats on. The Investors Intelligence bulls and bears stayed pretty much the same as they have been for two weeks now, which means the last week hasn’t changed sentiment.

So, I want to take you to a discussion of the chart of the S&P. As you know, I tend to base my market view on indicators and not the chart pattern in the major averages, but I can’t help but see this pattern similarity that I haven’t seen others discuss. At least not yet.

We had the initial plunge off the October high (arrow on the chart). It was followed by a pattern of up, down, up, down that played out like a “W.” Instead of that being a correction and ending there, we plunged into the final low.

Now, we’ve had an initial plunge, followed by an up, down, up so far. It is possible that it plays out as it did in the fall. That is not my expectation, because I think the intermediate-term indicators will get oversold on the next trip down, but I thought I should at least address the possibility.

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I was asked if I thought we could have another bout of volatility in the near term. So far the statistics don’t bear that out. If we look at the chart of the Volatility Index and compare it to that October time frame, you can see the similar pattern that occurred in October, but November, while volatile, was more like a set up pattern for December.

So, if we are comparing patterns, I would say we simply have a few weeks of back and forth first. Again, this is not my expectation, but it is a possibility. I can’t help but think we are going to rally one more time later this week.

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New Ideas

I was asked about the health insurance companies since United Health (UNH) - Get Free Report has been leaking and Anthem ANTM broke to a lower low Tuesday. Anthem is coming into a bit of support in that $260-$265 range, but a rally back to $275 that cannot recapture that line would be a place to sell it.

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Today’s Indicator

The McClellan Summation Index did not turn up Tuesday, but an up day with decent breadth could do it.

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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.

I must say I was rather surprised to be asked about Chesapeake Energy (CHK) - Get Free Report, because I didn’t realize it was still around. I see it is a dollar stock, though. If this move off the low is going to be any good, then it would have to play out like this: Rally to the red line, around $1.75, and pullback near the black line, around $1.60, to form a small bottom, because that resistance between $1.75 and $2 is going to be tough to eat through.

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Palo Alto Networks (PANW) - Get Free Report is oversold and at support, so it should bounce, but I don’t think I would trust it to go very far. I’d sell a rally to $210-$215.

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Loma Negra (LOMA) - Get Free Report is another Argentine stock that collapsed a week or so ago on the election results, which is too bad, because it was shaping up to be a nice chart. Now it will either need to go back and forth and build a new base for months to come or maybe you’ll get lucky and it will rally to $9 and you can sell it there. The best news is that there was a measured target right around $5.

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