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Expect More Rallies ... and Lower Lows to Come

The Fan Faves got sold, and let's review the sequence that played out in 2010.

The Market

The biggest change in the market Monday was that the Fan Faves have finally been sold. Or at least they started playing catch up on being sold.

Why is this important? You might have noticed I have not said that I think we’ve seen panic in the market yet. I think we’ve seen a lot of bearishness and we’ve seen minor bouts of panic, but not the sort where it sends the TRIN to a reading well over 2.0. I have no idea why the TRIN refuses to get over 2.0, but it refuses to do so.

But Monday they sold the Semis, the FANG names, and some other beloved favorites. Up until now the SOX had still not taken out the spring low, let alone the December 2018 low. This is incredible since Semis are so economically sensitive. Today the semis finally got sold.

Take a look at the ratio of the PHLX Semiconductor Sector (SOX:Nasdaq) to Nasdaq. Recall I complained near the highs that this ratio was no longer making higher highs, and thus was concerning. But for this entire decline, it has held up remarkably well. Until Monday. It is still not anywhere near the level that says there is real panic in the market but at least it has finally moved down.

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Why do I want to see these stocks sold? Because until folks sell, it means there is still hope alive and the best lows come when no one is long those stocks anymore, when they have given up hope.

The other thing I noticed was that there were fewer new lows than last Thursday. I generally do not like when that happens so fast. But I note this because at some point, the selling will have to exhaust itself and the best way to see that will be fewer new lows.

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Away from that, the Daily Sentiment Indicator (DSI) for Nasdaq is now 5. The S&P is at 4, and the Volatility Index is at 95. Let’s not be surprised if we get an up day Tuesday or Wednesday.

But I want to remind you that the sequence – when we do finally get a low – ought to be rally and another retreat, often to a lower low. Pin that 2010 chart on your wall. I could show you 2008, as well. Rallies and lower lows to come.

New Ideas

I am not a fan of the chart of SLV (SLV) - Get Free Report an exchange-traded fund for silver because, well heck, that looks like a fresh break but the DSI for SLV is now at 8 so a rally, maybe even back to that resistance at $13.50 would be a good place to sell.

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Speaking of the precious metals, the DSI For GLD (GLD) - Get Free Report is not that low (around $35), but it did bounce off support. Resistance is strong back in the $145-$150 area now.

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Today’s Indicator

The 30-day moving average of the advance/decline line is still not oversold. I still do not expect it to be oversold until some time in April. That doesn’t mean we can’t rally before then, but we will not be intermediate-term oversold before then using this indicator.

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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 was asked about the Utes last week and we looked at that long-term uptrend line that came in around here, but when I was asked about the individual stock Southern Co (SO) - Get Free Report, I saw a lot of support not far below. Everyone seems to be recommending the Utes and SO is a high quality one. Perhaps it starts to form some kind of bottom near this support area?

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We looked at Delta (DAL) - Get Free Report a week ago before it collapsed again and I indicated that we needed to wait for it to form a bottom of some sort. It still has not done so, but I would like you to squint and see a small green shoot: At least for Monday it is trading higher than Thursday’s close. At some point the selling will dry up. I don’t see a reason to get long any of these stocks, but I do want you to know what signs to look for if you are looking for a trade or a bottom.

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AT&T (T) - Get Free Report has some support at this $31 area and here, too, it is trading over the Thursday close. I would prefer that it not trade under $31, and that it begin to make a stand here. If it is going to end up being a good stock at some point in the future, it needs to start finding support on every dip down there.

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