Skip to main content

Heading Back Toward Overbought Land

From the looks of things, a pullback should be easier for the market by next week.

There will be no newsletter Wednesday evening. There will be a newsletter Friday morning, but there will be no newsletter this weekend unless circumstances merit it. Helene will be back to her regular schedule next Monday.

The Market

The dollar finally sold off and the majority of stocks were able to rally. Of course, I thought the dollar would sell off last week, but that lasted one day before it came down again. This remains the key to market breadth. A strong dollar is bad for breadth; a strong dollar leads folks to the Favored Few rather than the Multitudes of Many.

We continue to watch the CurrencyShares Euro ETF (FXE). A move back over $105 would be a big change.

Image placeholder title

In other words, breadth was quite good today, and better breadth helps the indicators. For example, down below you will see the McClellan Summation Index; it finally turned up today. That means it took seven trading days for this to happen. I call that late, but at least it’s an improvement.

The market will be back to an overbought condition in the days following Thanksgiving, so we are heading into an overbought condition after last week’s oversold condition. Many are questioning why the market was able to shrug off geopolitical news we saw today when Turkey shot down a Russian plane. I would submit that we’re not yet overbought.

Then there is sentiment. No one wants to be terribly committed to the market now. For weeks (months?), we’ve had nothing but money flowing out of everything else and into the Favored Few, so at a certain point folks tend to contain their bullishness as they recognize this is not a healthy situation.

Today saw the put/call ratio over 100% for the second day in a row, something we haven’t seen since just before the recent low. We also saw the put/call ratio of the VIX sink to 20%. For the longest time this was seen as a market positive. When too many bet on a higher VIX (i.e., too many calls being bought relative to puts), the market did the contrarian thing and saw the VIX go down and stocks go up.

The last three times we have seen this particular put/call ratio sink to 20% or below they have been on the right side of the trade. In mid-October, the very next day the S&P fell 11 points and then rallied again. In August, it went down and that was that. The same thing happened in late July: the market just went south and the VIX went up. Prior to that, we saw at least a one-day rally.

What I do want to point out, though, is that the 21-day moving average of the ISE ratio has now decidedly turned lower. On the chart below you can see the timing isn’t perfect, but the warning is there; we often see at least a whack of some sort after this turns down from that over- 105% level.

Image placeholder title

In sum, the market is heading toward an overbought reading by next week. So, that’s when I’d expect a pullback will be "easier" for the market.

Wishing all Americans a very Happy Thanksgiving!

New Ideas

Down below you will see many charts discussed as my request list was quite long. But I don’t mind. Please send me your requests!

I did want to follow up on Energy Select Sector SPDR ETF (XLE) because oil did rally today, as did the oil stocks. When we last checked on XLE I thought it could rally, but then I looked for another retreat. I have my eyes on that $70 level. If it stays under this area, then I am still in the camp that says it should retreat again. If it trades over it, I might need to reassess my view.

Image placeholder title

Also, let's focus for a moment on SPDR Barclays High Yield Bond ETF (JNK). It didn’t go down today. Of course, it didn’t exactly rally, either. But, if it can rally, XLE ought to do better. If it fails, then XLE ought to as well.

Image placeholder title

Today’s Indicator

The McClellan Summation Index is discussed above. If you get your magnifying glass you can see the turn.

P/>

Image placeholder title

Q&A

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 might have liked Perrigo (PRGO) had it not gapped down in November, because I would have seen that push down to the $150 area as the right shoulder of a head-and- shoulders bottom. In addition, there was a measured target in the $150-ish area. But that gap down to $140 gives me pause and makes me think this stock will see some more tax- loss selling over the course of the next month. Two things would change my mind -- some sideways action that tells me that spike down was a good flush or a move up and over that downtrend line. Indeed, I will draw in the pattern that would make me more bullish. If that pattern doesn’t play out (not my base case right now), then I’d say this stock simply is destined to do more work under the line.

Image placeholder title

On a long-term basis, the chart of MGM Resorts (MGM) is a decent one, having broken out from a long base in late October. There is a measured target near $28. However, I must say in the near term it is my view that the resistance between here and the recent highs is going to be difficult to overcome. I imagine it will fail at that first gap and come back down again. So, on an investment basis, as long as this stock stays over $22-ish I think it eventually will work its way higher to that target in the upper $20s.

Image placeholder title

I do not like the chart of iShares MSCI Italy Capped (EWI), an ETF to be long the Italian stock market. But I also will acknowledge that it has beaten the door of $13.75 so often and not broken. To me, it looks like a giant top just waiting to break and go lower. But we’ve seen these charts get saved time and again. A move up and over $14.25 would look like a decent save to me. Keep in mind that next week we hear from Mr. Draghi, who often offers soothing market words, such as "Whatever it takes."

Image placeholder title

United Rentals (URI) is a chart I can get behind and like. I can measure a target in the area of $85 to $87. I obviously would prefer to see it stay over the recent low of $72. Over $80 would be a mini breakout.

Image placeholder title

I have two different measurements that say Cyber-Ark (CYBR) should make its way to the $35 area over time. It’s possible that the recent move down to $38 was enough, but I stare at this chart and see resistance at $45 as well as a little gap to be filled there, and I think that might be all it can do for now. A gap up and over $45 would change my view because that would leave the area down here as an island reversal.

If I was going to bottom-fish in one of these cybersecurity stocks, I probably would choose FireEye (FEYE) because despite the long downtrend it has met its measured target and possibly could be forming a small-head and- shoulders bottom (very small!). It only would measure to fill the gap, though. There is a lot of work to be done in these stocks if they are to be good again.

Image placeholder title
Image placeholder title
High on Tech

High on Tech

Let's check sentiment, why you shouldn't trust any bounce from the producer price index number, and what the heck is up with those put/call ratios?

Bond Relief

Bond Relief

Here's why bonds could use a little respite as they were the only thing to really move today. Also, let's look at sentiment and McDonald's.

Breaking Bank

Breaking Bank

Suddenly everyone noticed the banks are not so hot. Also, let's look at new lows, energy and Exxon, and ... vomiting camels ...

A Rally Last Week? What Rally?

A Rally Last Week? What Rally?

It's almost like what happened last week never happened. Also, let's check the indicators, the overbought reading, energy, transports and ... Tesla.