Skip to main content

Here's How I 'Rate' the Market's Chop

We're seeing something different now as interest rates have fallen but no one is embracing the move.

The Market

More chop. But this week’s chop is a bit different.

The reason, I see it different is that interest rates have fallen to a great extent and the market isn’t necessarily embracing it. Instead, banks are slipping, industrials are slipping and the transports, which I noted here weeks ago as stalled and vulnerable, are slipping.

However, at the same time, growth stocks aren’t budging, either. What is moving is mostly all those speculative stocks from earlier in the year. That makes breadth good, but it makes for a lot of chop. And it makes the stocks that have been good in the second quarter act poorly.

The biggest change in the market, despite the S&P flat for weeks on end, is sentiment. If we use the put/call ratio, it has gotten extreme. On Tuesday, the equity put/call ratio slipped to 35, which is the lowest reading since late February. Prior to that was late January. Those are the red arrows. Notice how fearful everyone was a month ago at the blue arrow. That fear has given way to complacency.

Image placeholder title

I have noted that I think the 10-day moving average of the put/call ratio should bottom out in the coming days and that is usually a time the market struggles and pulls back. The Investors Intelligence bulls picked up one point to take them to 54.5%, which isn’t a big tell, but the bears are down to 16.2%, which is now the lowest reading since that late summer high last year.

Tomorrow we will get the National Association of Active Investment Managers exposure and the American Association of Individual Investors readings. I don’t expect either to be significantly changed.

The number everyone cares about for tomorrow is the CPI to measure inflation. Now that the bond yields are so low I don’t know what a weaker-than-expected number does to bonds, but a strong number ought to see them pullback.

To sum it up, I think breadth overall is fine, but it is fine in speculative names. And I think sentiment is too complacent. But thus far, all we get is a sideways chop in the major indexes. If this persists a few more days, then I would look for another pullback in the market, especially given that equity put/call ratio reading.

New Ideas

I want to show you some charts I am watching, because they look like big tops. Yet they don’t break. They come down just so far and get saved. If, over the course of the next few weeks, that pattern changes — meaning they no longer get saved — then I would expect a change in the market. Look at Square (SQ) - Get Free Report, which if it breaks $200, would actually complete the top. But every time it has come down to that $200 area it has held and been saved. That’s what I would watch.

Image placeholder title

A few weeks ago, I was asked about Uber Technologies (UBER) - Get Free Report and said I’d be a seller on a rally to fill that gap near $52. But look at it — sure that’s where it stopped, but has it died from there? No. But now there is the uptrend line that comes in around $45.

Does that hold? If it does, then great. If it doesn’t then that changes the nature of the charts.

Image placeholder title

Then there is Deere (DE) - Get Free Report in the industrial space. It has been correcting since March as well. Yet now it finds itself smack at an uptrend line. In this market those types of charts have either broken and snapped back or been saved. Again, a break that doesn’t snap back or get saved changes the equation.

Image placeholder title

Or how about the home builder exchange-traded fund, the iShares U.S. Home Construction ETF (ITB) - Get Free Report? It has been getting saved at $68 for weeks. Does it break or does it get saved?

Image placeholder title

So that’s what I’ve got my eyes on while the major indexes chop sideways I will watch stocks like these to see if they get saved as they have for months.

Today’s Indicator

The Volume Indicator is overbought.

Image placeholder title

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.

Every time I am asked about Advanced Micro Devices (AMD) - Get Free Report lately, I point out this giant potential head-and-shoulders top. There is simply no getting around the fact that if this stock breaks those lows, it will not be pretty. But I think we need the market to crap out too for that to happen. In other words they would go hand in hand. I don’t love the chart here, but as long as it stays over $74, maybe it’s just a big sideways. The problem is all the resistance all the way up.

Image placeholder title

Intuitive Surgical (ISRG:Nasdaq) is a decent chart, having broken out and then corrected for a retest of the breakout. There are layers of resistance, so there is no clear cut breakout, but I am in favor of this chart.

Image placeholder title

I was asked about the long-term chart of iShares Silver Trust (SLV) - Get Free Report, an ETF for silver. I like it longer term. Shorter term, I think it is a coin toss as to whether or not it breaks out. It has spent an awful lot of time up here unable to breakout and the dollar is not breaking down anymore. I would own some in case it breaks out and if it can breakout then I would add.

Image placeholder title
Dow is the Most Vulnerable to Profit Taking

Dow is the Most Vulnerable to Profit Taking

Despite the newfound focus on the Dow Jones Industrial Average last week, it turns out we may be seeing the last gasp of outperformance here.

How Hungry Is This Market?

How Hungry Is This Market?

Here's what I'd like to see happen with this rally -- I'd like it to show some FAANGs. Here's why -- and a look at Microsoft's chart, news highs and more.

Sloppy With a Chance of Rallying

Sloppy With a Chance of Rallying

Here's why I see another rally before the weekend, even amid the messiness, and a bump for Amazon.

Sloppy With a Chance of Rallying

We Can Rally Just a Bit More

Energy stocks have a lot of complacency in them.