Monday we were “this” close to giddy and then the market chopped Tuesday. Now everyone on television sees a pullback coming, whereas the day before they did not.
Tuesday remained mostly a chopfest, despite that the selling accelerated in the stocks that were the former favorites: software names, growth stocks and the defensives. Breadth was basically flat.
But here’s what we need to watch: The McClellan Summation Index is still rising. It will take a net differential of approximately negative 400 advancers minus decliners on the New York Stock Exchange to halt the rise. Then obviously it would need more than that to roll it over. As you know, as long as the Summation is rising, the majority of stocks are rising. So, if it rolls over, we lose that. The chart is shown below.
Sentiment also remains an issue for me. The Fear and Greed Index is now at 89. The DSI readings have backed off from those mid to high readings in the 80s we saw Monday, but they remain elevated.
The 10-day moving average of the put/call ratio is now down at the level it has seen the market back off from, so that too says it’s time to be picky.
The Investor’s Intelligence bulls did not expand as much as I thought they would, but at 57.1% they are the highest since they were 58% in mid-July. They are also now over that 55% mark. Sure we can squeeze out some more on the upside, but it really seems we need to see a shakeout or a sideways move.
I still think the Volatility Index ought to enjoy a rally later this week. The chart to watch is the iShares 20-plus Year Treasury Bond exchange-traded fund (TLT:Nasdaq). We got that nice rally last week, but it came right back down. I think we see another bounce off this $136 area, but if I’m wrong and we break below with any oomph, that would capture the attention of many.
I am still a fan of the banks. You can see last week, they managed to trace out the pattern I had drawn on the chart – a rally and retest of the line. But they are a bit over-extended now. There is another target around $115, but I don’t think the Bank Index gets there without a correction, then pullback or consolidation first.
United States Natural Gas Fund (UNG) - Get Free Report did exactly what it was supposed to last week when it came down to tag that black line before rising again. It is now approaching resistance around $23, but more importantly the DSI is now $91. I’d take some profits. Longer term, it’s a good chart, but short term it’s gotten ahead of itself.
Jet Blue (JBLU:Nasdaq) has a huge base. I think it is very over extended in the near term, but if it can pull back, to say, $18.50-$19 gradually, then I think it has a chance of breaking out a month or so from now.
Shopify (SHOP) - Get Free Report has support at $280. If it breaks it, then it will complete a giant top that would over the long-term measure back to the mid $100s. When I say a break of $280, understand that I use a very thick line, because it has to break it so we can actually see it. Then rallies back to breakdown would be sales/shorts.
The chart for the McClellan Summation Index is below:
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I would like to think that the chart of Momo (MOMO:Nasdaq) will just consolidate here and then push higher, but I’m not sure I trust it 100%. I would say if it can consolidate over $37, then I’d give it a better chance of making this breakout matter.
I have drawn in a lot of small lines on the chart of Xilinx (XLNX:Nasdaq), so let me explain them. The lower line at $90 represents a potential double-bottom – that’s bullish. The flat line around $102 represents a gap fill from the mid-September gap down. The short downtrend line that comes in at around $102 means that unless and until this gets over $102, it remains a stock in a downtrend. If you want to speculate that this is a double-bottom, then the stock is buyable anywhere between here and $83, filling the gap from two days ago. Then you’d use a stop under $90. The best thing the stock can do would be to gap up over $105 and leave the entire last six weeks behind. I’m just not sure it will do that.
Reaves Utility Income Trust (UTG:Amex) hasn’t done anything wrong, but it hasn’t made any progress since August. As long as it stays over $35, then it gets the benefit of the doubt that this is a consolidation, but under $35 and it’s a game changer.