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Expect Another Pullback

We might rise on Monday, but that won’t be the end of it, so put on your seat belts.

The Market

When the market sells off into the bell before the weekend, it tends to temper enthusiasm and my guess is we saw some of that on Thursday. That having been said, I have not changed my view that I think we see the market pull back this coming week. And I would feel even stronger about it if we saw the market lift on Monday.

One reason I note that if we see the market lift on Monday I think it gives me more confidence we sell off during the ensuing days is because of that “Friday (or in this case Thursday) effect,” where we sold off into the bell. But another reason is that the Daily Sentiment Index (DSI) is at 93, so unchanged, for Nasdaq, but for the S&P it is at 87 so one more day would push it over 90.

I would also note that my weekly Twitter poll, which was quite helpful last week, with all that bearishness, has turned from 61% looking for downside and 39% looking for upside to 50-50. Note that in early June as the S&P was peaking the most “bullish” they got was 51% so I call that a shift in sentiment.

I would make one other point and that is that despite the big rally last week, very few indicators changed with one exception. Nasdaq’s new highs continue to lag, but the New York Stock Exchange saw a nice increase for the first time. The chart is shown below.

Now, let’s talk about trendlines. You have seen that channel I keep drawing in for the Invesco QQQs (QQQ:Nasdaq) and it has worked quite well for more than two months. The main change is that starting in mid June it stopped tagging the upside of the channel and thus far it has failed to get back up there again.

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Similar lines can be drawn on the chart of Nasdaq. But what I found interesting was that I can connect the three recent highs in Nasdaq with the February high. I can also do the same with the QQQs.

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Then I take a look at the chart of Nasdaq, dating all the way back to early 2018 and that line from February connects all the way back there. Keep in mind my view on trend lines is basic geometry: Two points make a line, a third confirms it, the more points on the line, the better the line. This line has a lot of touches, depending how you want to count them.

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In sum, even if we begin the week with a rally I would look for a pullback thereafter.

New Ideas

For the person who has asked about Walgreens Boots Alliance (WBA) - Get Free Report several times we discussed having a look at it down in the $40 area, as it could be the left shoulder of a head-and-shoulders bottom. It has spent the last several weeks down here so as long as it stays over this uptrend line I’m in favor of it.

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Today’s Indicator

The number of stocks making new highs is discussed 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.

With Amgen (AMGN:Nasdaq) having finally rallied hard last week I was asked if I still like the chart of Gilead (GILD:Nasdaq), which I have liked since it got down near $72 in late May. Yes, I am still in favor of this chart as long as it stays over $74. Of course it would be better if it could finally lift itself up and over that $78 area.

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Broadcom (AVGO:Nasdaq) is enticing with its 4% yield and that possible breakout over $320 looming. But while I typically prefer to anticipate the move in this case I think I would wait for the move over $320 to get on board.

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I was asked to follow up on Lumentum (LITE:Nasdaq), which I highlighted a week ago with a positive bias. It had a nice run last week but got stalled and turned back from resistance at $85. Some sideways work now would be helpful, to digest the gains. A pullback toward $77-$78 would get me back in.

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Right now Costco (COST:Nasdaq) is trapped in a range, but I think it is improving with this sideways move. I think it’s a little too soon to expect a move up and over that $315 area, but I think it eventually does it; it probably takes a few more weeks of work though.

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If JPMorgan (JPM) - Get Free Report could come down to $90 to tag that line and fill that late May gap I’d take a stab on the long side since if it broke under $88-$89 you’d know you were wrong.

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